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“Not one dime,” said President Obama in his address to Congress, referring to how much extra tax people earning under $250,000 a year will have to pay in his budget. Unfortunately, even if you don’t have to pay extra tax, you will have to pay extra fees for your energy, which are passed on to the government via energy companies. That’s the effect of the President’s cap-and-trade scheme for carbon emissions, an important part of his new budget. Energy companies will have to pay the government for permits for each ton of carbon dioxide or equivalent they emit in the generation of power. They will pass on these costs to the consumer, as has happened everywhere a cap-and-trade scheme has been tried. The Administration will split the revenues between $15bn for alternative energy pork and about $52 billion per year to help pay for the Making Work Pay tax cut/welfare check of $800 for “95 percent of all American workers.” By raising the price of fossil fuel energy and thereby making expensive alternative energy more competitive, the program is also aimed at reducing the amount of greenhouse gases emitted.

How much will cap and trade cost households in increased energy costs? Well, we know from a CBO study last year that a 15 percent reduction in emissions from 1998 levels would cost each household at least $660. That target is about 25 percent more stringent than the budget target, which is simply a return to 1990 emission levels by 2020 (far less than environmentalists demand). So we can apply simple arithmetic to estimate that the current budget cap and trade program will cost each income quintile $510, $660, $870, $1125 and $1635 (in 2006 dollars, slightly more in nominal values) respectively. This is a significant offset to the $800 “tax cut” per worker.

To those who might object that most households have two income earners these days, that’s not true. While the “traditional” family model of a husband supporting his family only accounts for 7 percent of householders now, dual-income families actually account for just 29 percent of households. Moreover, it is the bottom three quintiles that have on average just one earner, meaning that they suffer proportionally more from this energy tax increase.

Finally, for the highest quintile, the lower income limit is just $88,000. If you earn that amount, even if you have two income earners in the household, you will likely lose money from these stealth energy taxes. So will the average household earning between $35,000 and $55,000. So much for “not one dime.”

A cap-and-trade scheme is a lobbyist’s dream. For those of you unacquainted with how these boondoggles work, it goes something like this: (1) regulators assign an emissions quota to tens of thousands of individual industrial suppliers and users of energy (because emissions are synonymous with conventional energy use, an emissions “cap” is the same as energy rationing); (2) these businesses then purchase the right to emit their allotment in the form of permits disbursed by a government-run auction; (3) these businesses are allowed to trade permits among themselves (ie, a company that exceeds its emissions quota can buy permits from a company that emitted less than its quota); and (4) the government spends revenue raised in the auction of emissions permits-as much as $300 billion a year, according to the Congressional Budget Office-on green technologies and mitigation of the cap-and-trade’s adverse economic impact.

Lobbyists love cap-and-trade because of its complexity. At every step of the process, there are myriad nooks and crannies into which they can stuff special favors for their corporate clients. Industrial suppliers and users of energy will hire lobbyists to claim that they deserve free permits for some reason or another. And the auction-generated revenue would create a huge money trough coveted by every conceivable special interest and their pricey lobbyists.

Given that the President last night announced that legislation for “a market-based cap” on greenhouse gas emissions is a priority for his administration, it should come as no surprise that there has been an explosion in climate lobbying on Capitol Hill. According to an article in today’s Politico,

“A Center for Public Integrity analysis of Senate lobbying disclosure forms shows that more than 770 companies and interest groups hired an estimated 2,340 lobbyists to influence federal policy on climate change in the past year, as the issue gathered momentum and a bill came to a vote in Congress.

That’s an increase of more than 300 percent in the number of global warming lobbyists since 2003, when Congress previously voted on climate change legislation, and means that Washington can now boast more than four climate lobbyists for every member of Congress.”

Let that last line sink in: Four climate lobbyists for every member of Congress!

The House and the Senate held competing A-list hearings on global warming on Wednesday at 10AM. Testifying before the Senate Environment and Public Works Committee was Dr. Rajendra K. Pachauri, the Chairman of the Intergovernmental Panel on Climate Change. Testifying before the House Ways and Means Committee was Dr. James E. Hansen, whom the committee described as an Adjunct Professor at Columbia University’s Earth Institute. He is of course also Director of NASA’s Goddard Institute for Space Studies. I tried to watch both hearings on the internet and thereby undoubtedly missed a lot of good stuff as I switched back and forth. Interestingly, Pachauri, an economist and engineer, talked mostly about global warming science, while Hansen, an astronomer, talked mostly about economics. Pachauri was utterly dreary. Hansen was an interesting mix. He inveighed against cap-and-trade as an ineffective scam designed to pay off big business. He instead endorsed a stiff carbon tax with 100% of revenues rebated to consumers.

When asked by Rep. Earl Pomeroy (D-ND) about what would happen to North Dakota and its near-total reliance on brown coal for producing electricity, Hansen said that employment in the coal industry would go down, but that North Dakota had lots of potential for wind power and potentially for growing well-designed bio-fuels. He observed that these new industries might create more jobs than would be lost in the coal industry. That is true. One of the ways to create jobs is to make production and use of capital less efficient. For example, there would be tens of millions, probably even hundreds of millions, of new jobs in North Dakota and throughout rural America if mechanized agriculture were banned. Then the federal government could throw billions of dollars of taxpayer money into improving farming technology. Think of the breakthroughs that could be made with revolutionary new horse-drawn plows, etc.

The Republican witnesses—Professor William Happer at the Senate hearing and Professor John Christy at the House hearing—were articulate, intelligent, and scientifically accurate. Christy made a strong case against energy poverty. Naturally, most Senators and Representatives were unimpressed and unhappy with them.

In his first address to Congress, President Obama said that the “stimulus” legislation and other short-term economic policies were necessary to prevent a decade-long recession. He then went on to advocate energy and global warming policies that will foster a perpetual recession. First, he promised that federal funding and mandates will make the United States the world leader in renewable energy technologies. As an article that might have been published in the Onion but actually appeared in the Los Angeles Times last week noted, the only thing holding renewable energy technologies back is a number of necessary technological breakthroughs that will make them work. Apparently, our President is too young to have learnt that the federal government has been throwing taxpayer money at renewables since the 1970s.

The President then called on the Congress to send him cap-and-trade legislation that would make renewable energy profitable by raising the price of conventional energy produced from burning coal, oil, and natural gas. Yes, renewable energy will become profitable, many jobs will be created, and we’ll have to settle for a significantly lower standard of living as a result. The sad fact is that the new Administration has some highly-regarded establishment Democratic economists in it, but is for some reason pursuing economically illiterate and consequently disastrous policies.

“A Matter of Fact,” a new report from the Center for American Progress Action Fund, challenges the Washington Post to correct George F. Will’s “Dark Green Doomsayers” column, published February 15^th. The report, by CAP’s Brad Johnson, asserts that George Will made three factual errors:

• Current “global sea ice levels” equals those of 1979
• There hasn’t been warming in “more than a decade”
• “Global cooling” joins a list of well publicized “planetary calamities that did not happen.”

Will’s column is not perfect, and Johnson raises some valid questions. For the sake of intellectual honesty, however, Johnson should broaden his fact-checking scope to incorporate misstatements on both sides of the global warming debate—including his own fudging of the truth.

But first, let’s address CAP’s critique of Will’s column.

Error 1. It seems that Will is guilty of delay. On the one hand, the University of Illinois Arctic Climate Research Center, the source of his assertion that global sea ice levels haven’t changed in 30 years, publically disavowed Will’s claims. On the other, ACRC reported on January 1, 2009 that global sea ice levels were “near or slightly lower than those observed in late 1979.” Will’s column appeared 45 days later, during which the discrepancy between current levels and 1979 levels grew by 8%.  If anything, this demonstrates the perils of reporting on an ever-changing global climate.

Error 2. CAP and George Will have it wrong. Will wrote that it hasn’t warmed in “more than a decade,” while Brad Johnson claims that “global warming is continuing.” According to data from the University of Alabama in Huntsville, compiled by NASA’s Dr. Roy Spenser, there has been no statistical warming of lower atmosphere temperatures over the past seven years, despite the fact that global greenhouse gas emissions have increased.

Error 3. Will is right and CAP is wrong. Johnson notes that there was never a “scientific consensus” on global cooling, but that’s not what Will claimed. He only wrote that some scientists and media outlets warned of global cooling, which is true.

I am an unabashed global warming “denier,” but I nonetheless applaud Brad Johnson’s efforts. On the topic of global warming, misrepresentations of the science abound, and we in the energy/global warming policy community should root them out and expose them with vigilance.

With that in mind, I have a “Matter of Fact” list of my own:

Fiction: Al Gore claims in his documentary, An Inconvenient Truth, that “there is one relationship that is more powerful than all the others and it is this. When there is more carbon dioxide, the temperature gets warmer ….”

Fact: It hasn’t warmed in 7 years, despite a steady increase in global greenhouse gas emissions. Where’s the Warming, Al?

Fiction: Dr. James Hansen, ultra-alarmist, has suggested that a 2-3 degree warming would cause sea levels to rise by 80 feet. Hansen then lowered his estimation to 20 feet. His most recent estimate is “at least” 3.2 to 6.4 feet.

Fact: The preeminent body of climate scientists, the Intergovernmental Panel on Climate Change, suggests that a 2-3 degree warming would cause sea levels to rise 7 to 23 inches.

Fiction: In 1986, Dr. John P Holdren, President Barack Obama’s choice to become White House Science Adviser, is quoted as having said that global warming could cause the deaths of 1 billion human beings by 2020. During his confirmation hearing two weeks ago, Holdren was questioned about this claim, and said that “it is still possible.”

Fact: To fulfill Holdren’s alarmist warning, climate change would have to kill twice as many people as died in World War Two, each year, for the next ten years.

Fiction: The Center for American Progress’s Brad Johnson last summer reported that the death of two Boy Scouts in Iowa was “evidence” of “the consequences” of global warming.

Fact: As recently noted on Roger Pielke Jr’s Prometheus, the Center for Research on the Epidemiology of Disasters cautions that “justifying the upward trend in hydro-meteorological disaster occurrence and impacts essentially through climate change would be misleading.”

The President might make various remarks relating to energy tonight. These are likely to center around grandiloquent claims as to the effectiveness of “green jobs” and alternative energy in saving the economy, not to mention the planet. Here are a few notes on the reality of these claims.

Green Jobs: The President will probably claim to be creating millions of “green jobs” to save the economy, fight global warming and end dependence on foreign oil together. In fact, “green jobs” have a number of problems, outlined in my Examiner piece from yesterday. To summarize:
• “Green jobs” come at the expense of traditional energy jobs. At the moment, the wind industry employs 85,000 people in all its facets (including support staff and suppliers). The coal industry employs 81,000 miners alone, and probably over 1.4 million in all, including support staff and suppliers.
• “Green jobs” are more expensive to society in general. Those 85,000 people in the wind industry contribute to the generation of just 1.3 million MegaWatt-hours of electricity, while the coal industry generates 155 million MWh, making each coal industry job seven times more productive than a wind industry job. The difference in cost is born by the rest of us.
• “Green jobs” are mostly low-paid and transitory, according to a recent report by, among others, The Sierra Club and the Teamsters union.
• A German government report found that “green jobs” are only beneficial to the economy as long as Germany remains a net exporter of green technology and power. As soon as other countries utilize their comparative advantages in manufacture and power generation, “green jobs” become a drain on an advanced economy.
• Most “green jobs” are related to the generation of electricity, which is not used to power cars yet, and so do nothing to lower our “dependence” on foreign oil (and most oil we use comes from the US and Canada in any event).

Alternative Energy: The President may repeat his promise to double the use of alternative energy, again claiming effects in terms of climate and energy independence. This claim is, in all probability, disingenuous.
• A doubling of alternative energy electricity production by 2011 would require the main alternatives – solar, wind, geothermal and biomass – together to generate 144 billion KiloWatt-hours of electricity by then. However, under the Energy Information Administration’s “business-as-usual” projections, these industries are expected to supply 150 billion KWh by then, with no additional policies needed. (Note the EIA includes hydropower and wood in its renewables calculations, for the solar/wind/geothermal/biomass figure, see here.)
• Reduction in greenhouse gases as a result of this policy is not likely to occur, as the EIA predicts a similar increase in the use of coal to generate electricity by 2011. In all probability, therefore, we will be emitting greater amounts of greenhouse gases by 2011, not less.
• A “smart grid” is probably a useful technology, but the President and the stimulus plan gold-plated it in order to boost their renewable energy rhetoric. William Tucker has a good summary of what is wrong with the President’s version of a “smart grid” here.
• If the President means that he will double the use of biofuels, this is likely to mean a significant increase in corn ethanol production, resulting in greater diversion of the corn supply into fuel production. This will likely increase already-inflated food costs (the recent price drop would have been significantly greater were it not for ethanol manufacture) and thereby increase food insecurity in a recession. Increased ethanol production is opposed by most major environmental groups as well as free-market groups. See Facts About Ethanol for more.

Marlo made three interesting arguments yesterday contending that cap-and-trade would generate protectionist outcomes. I want to add another, pervasive, yet oft-neglected reason.

Environmental regulation spurs the businesses who feel cheated to lobby for other forms of protectionism for their industries. This is a very different mechanism from Marlo’s identification of particular measures with protectionist policies. It doesn’t matter what the content of the regulation is; as long as businesses perceive it as hurting them, they will lobby for and get protectionist measures to help them in other ways. Just think what the auto industry would do if Congress tried to increase CAFE significantly or require drivers or manufacturers to buy carbon credits; they’d probably log-roll and get tarriffs against foreign manufacturers as part of the package deal. Something for you, something for me, less for the consumer.

There is good empirical support for this proposition. Western Washington University economist Steven Globerman made the argument back in 1999, hidden within a broader book arguing that trade is actually good for the environment.

Globerman noted that “lobby groups will use environmental issues to extract protection against imports.” And they will generally win. “Governments in high enforcement countries can and will invoke trade remedy laws, particularly countervailing duties, against exporters in weak enforcement 

countries.” The log-rolling takes place internationally as well. If we give into the EU’s demand to join a climate regime, we may be able to get acquiesence in our new protectionist measures.

We don’t want “significantly higher risks of trade wars tied to escalating retaliation for specific environmental practices.” As economist and MP Michael Spicer put it in his 1996 book The Challenge from the East and the Rebirth of the West, “if the stability of the world is to be assured it must be through the spread of free trade.”

Yes, for three reasons.

(1) Companies in carbon-constrained countries will demand carbon tariffs to “level the playing field” vis-a-vis firms in non-carbon constrained countries.

(2) Cheating will be rampant unless deterred and punished by credible trade sanctions.

(3) The EU-IPCC-Al Gore goal of achieving a 50% reduction in global emissions by mid-century is impossible absent deep emission cuts in developing countries, which in turn won’t happen unless developing countries are bullied into limiting their consumption of coal and oil.

For further discussion, see my post on Masterresource.Org.

In today’s Guardian, Juliana Glover reports that carbon permit prices in Europe’s Emission Trading System (ETS) have crashed from €31 last summer to €8 today. This price is too low to create any incentive for covered entities to invest in ‘green’ technology.

Glover identifies two causes for the collapse of carbon permit prices. First, the recession has reduced demand for energy and, thus, for carbon permits. Second, European governments handed out “luxurious quantities” of carbon permits, free of charge, to big emitters, claiming that economic growth “would soon see them bumping against the ceiling.”

Glover says the EU must do two things to rescue the ETS:

First, the EU must stop importing permits from countries such as Russia–a bonus for a paper transaction. No one really believes that 15m tonnes of imported permits will not be emitted by a steelworks somewhere east of Novosibirsk.

Second, it must publish plans to crack down on the surplus of permits when the recession is over. Warnings of famine ahead, when the scheme enters its third stage in 2012, would raise prices now, if believed.

She concludes caustically: “Like medieval pardoners handing out unlimited indulgences, governments have created a glut. Reformation must follow. Wanted–a modern Martin Luther to nail a shaming truth to industry’s door: Europe’s whiz-bang carbon market is turning sub-prime.”

Glover’s commentary vindicates free-market critics (see, e.g., here, here, and here) who have warned that Europe’s vaunted ETS is an unsavory combination of wealth transfer and creative accounting.

My concern is what lessons if any climate doomsters here in the United States draw from Europe’s failure.

Most U.S. greens prefer cap-and-trade to carbon taxes. Part of the reason is political. Most voters oppose new taxes, but most do not understand that cap-and-trade schemes are stealth energy taxes.

Greens also argue that only cap-and-trade (a) provides “emissions certainty” (determines in advance how much and how fast emissions will decline) and (b) creates strong incentives for firms to innovate and go “beyond compliance” in order to amass and sell surplus carbon permits (transferring wealth from buyers to sellers).

But the collapse of the carbon market calls in question both alleged policy advantages of cap-and-trade. Europe’s ETS is exerting no pressure to reduce emissions in today’s distressed economy, whereas a carbon tax mostly certainly would. Moreover, the ETS is fostering creative accounting, not innovation.

While it would be premature to say that the cap-and-trade lobby is losing its clout on the Hill, it is interesting that Energy Secretary Steven Chu recently floated the idea of a carbon tax. It is also noteworthy that NASA’s James Hansen, the doyen of global warming alarmism, cautioned President-elect Obama last December that, “A carbon cap that makes one more stinking millionaire on the backs of the public is going to infuriate the public.” Hansen argued that, “A carbon tax (across all fossil fuels at their source) is essential.”

Given the Administration’s apparent determination to regulate carbon dioxide (CO2) under the Clean Air Act (CAA), we could possibly see growing support within green circles for a combination of carbon taxes and CAA regulation of CO2 from autos and large stationary sources.

Of course, this would take all the fun and profit out of global warming for the corporations pursuing European-style wealth transfers and windfall profits under cap-and-trade.

So, liberty lovers be warned: We could end up with cap-and-trade, carbon taxes, and CAA controls on CO2. As Al Gore said at his March 2007 Senate Environment and Public Works hearing, “We need it all.”