Global Warming and California Politics

Noble, well-intentioned government efforts to reduce increasing human emissions of CO2 into the atmosphere are laudable.

Unfortunately, few politicians are either noble or well-intentioned. Causes are often twisted into short-sighted, political goals.

As proof, take California’s cap-and-trade legislation just adopted in September 2012. Already, it’s being re-purposed into a government revenue dispenser to help plug California’s budget deficit. That’s a far cry from saving the planet.

The Wall Street Journal revealed that yesterday in an article titled:
California’s Cap-and-Tax Grab

What is Cap-and-Trade?

It is a pretty clever political mechanism devised by the United Nations to reduce greenhouse gas emissions and prevent global warming.

Its a simple concept… tax polluters for excessive CO2 emissions!

It kills two birds with one stone:

  1. Taxing polluters is an economic incentive to pollute less
  2. Realized auction revenues then get spent to fund renewable, green energy programs

It is a double-barreled blast. Businesses will pollute less because it costs them more if they don’t AND what it does cost them is plowed into developing technologies that will further reduce greenhouse gas emissions.

In pragmatic terms it’s accomplished through “carbon credit” allowances. One allowance is so many tons of CO2. They are sold in auctions and their value is allowed to float in the free market. They provide economic incentives for companies to reduce their emissions.

First, though, you set a “cap” of allowed carbon credits by industry. The “cap” can’t be exceeded and it gets lowered over time to reduce CO2.

The other part of the system is “trade”.

Businesses and industries that do not use up all their carbon allotments are allowed to sell them on an open commodities market. Abusing companies that exceed their carbon allotments, like coal-fired electric plants, can then buy the excess carbon allotments from other industries in order to continue to operate. Otherwise, they’d have to shut down for the rest of the year.

How could anything that clever go wrong?

What is wrong with Cap-and-Trade?

In a word, the problem with cap-and-trade is “trade”.

It makes no sense whatsoever, if you are really serious about limiting carbon emissions, to allow companies to buy carbon credits so that they can continue to pollute.

Under those conditions a company just buys the allotments it needs and passes that extra cost on to their customers as part of the price of doing business. That effectively amounts to a regressive tax. Warren “The Wizard” Buffett is right.

Bottom line, CO2 is not reduced.

“Trade” also requires creation of a whole new commodities trading market like the Chicago Mercantile Exchange to trade carbon credit allowances. That is just another way for commodities traders to get rich, especially from public and private electric utility companies at their end-user’s expense.

The “trade” part of cap-and-trade only makes sense if your main purpose is to generate revenue.

According to the Wall Street Journal, that is exactly what California is doing.

The Perversion of Cap-and-Trade

According to the WSJ, California expects to generate $500 million this first year from auctioning off carbon credit “permits”.

Instead of funding green energy programs, the legislature and Governor Moonbeam decided to redirect that revenue to reduce the state budget deficit.

Its a temporary, one-time thing, of course. 😉 😉 They vow to pay back the fund in short order from the $2-$14 billion more the state expects to generate from auctions between now and 2015.

And if you believe that, I have some bridge property in the Gobi Desert I’ll sell you.

They call theirs a “fee” instead of a “tax” because raising taxes in California requires voter approval.

Conclusions

The State of California is counting its chickens before they hatch. It’s already greedily divvying up the profits. Lawsuits may bring it all down, according to the WSJ.

California’s start-up is the world’s 2nd largest cap-and-trade system. The largest is the Eurozone’s.

The “trade” part of cap-and-trade is its Achilles’ heel. The Eurozone’s system has already collapsed in its infancy as soon as real money was on the line.

It’s estimated that Eurozone allotments should cost about €30/credit to actually reduce emissions. They are currently around €3/credit and the European Commission has postponed selling more credits.

The same collapse, no doubt, will happen to California.

Just put a “cap” on emissions, fine violators and leave it at that. Companies can deal with it. It is a much more effective way to reduce emissions.

Turning global warming into just another revenue-generating tax will never work.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Jun 19, 2013, in Business, climate change, economics, Energy, environment, Government, news, Politics, science, Taxes. Bookmark the permalink. 1 Comment.

  1. I’d bet some good California Democrats are going to make a lot of money off of this insanity. Just what we need are more Al Gores.

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