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Cap and trade will have "unexpected" costs
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Just this past Friday the US House of Representatives passed a massive "Cap and Trade" carbon emissions law, without actually sitting down to read the nearly 1500 page document and considering the economic realities involved. The standard cry has been that we must do something today to stop global warming, but as I have pointed out, the economic "law of unintended consequences" is likely to make full passage of this law a millstone around the economy.
I do not want to argue the reality or falsehood of global warming. The truth is that whether or not it exists, the solution may prove to be so economically harmful as to end up making the situation worse in the long term. There are costs involved in cleaning up emissions from power generation, or building new devices to produce power, and those costs will add up. In fact a huge part of the reason that change to a less carbon intensive power generation system has been because of the costs involved.
One of the best examples of this actually comes from a non-blogger who provided some analysis in the comments at Michelle Malkin's blog, although she pulled them out for analysis in an article. The person in question works or worked in the coal industry and was willing to perform some extensive data gathering to determine just how many coal-mine workers there current are in each state. And comes up with a total of more than 1 million currently employed workers who might find themselves out of work should coal mining end due to Cap-and-Trade emissions restrictions. He provided a full spreadsheet that can be downloaded from a cache file. HERE. He also makes an interesting point when he observes:
It is interesting to note…that the coal mines are very capital intensive. That is, they require very large investments in capital equipment to mine the coal.
He uses this to point out several companies that are likely to see sales impacted if coal mining slows or stops due to the cut backs. It’s a valid point, but also an incomplete analysis. Mining as well as oil drilling are both very capital intensive to set up and start. The companies, which provide oil and coal to our economy and other economies around the world are spending vast amounts of money to find and set up to extract these vital raw materials used to power much of the world. They only do that because the financial rewards for providing these products exceed the costs. Cap-and-Trade attempts to make providing power through coal or oil more costly, and therefore less common. It will succeed on that front, but that means the massive capital investments vanish. Jobs will be lost because companies are not going to hire workers to help extract more oil or coal if its unprofitable. Considering the fact that one of the major complaints from economists at this time is the lack of business investment and expansion, the fact that Cap-and-Trade has the potential to generate a massive reduction in the expansion of the energy sector should have raised warning flags.
And we should consider that no company wants to throw money away. If solar or wind was truly more efficient and profitable, we'd see companies working hard to produce most energy through these methods. Most people who live in the San Francisco Bay Area know about the massive windfarm just west of Livermore, CA. It's been there for more than twenty years, but has grown little in the last decade. People decided that there were costs, both economic and visual that proved to be too high to justify expanding the number of wind turbines in the area. I can remember another windmill that appeared just off the I-680 between Vallejo and Fairfield. At the time I did not pay a great deal of attention, but what I did hear was that this new windmill was going to be the first of many trying to take advantage of the usually steady breezes in the delta region. I have not driven past it often in the years since its completion, but I can only remember one time it was actually operating. It was a massive capital investment for little return.
Wind and solar power might someday be efficient and profitable, but currently they are only barely competitive with government subsidies. Economically speaking, there is no question that Cap-and-Trade will increase the costs of energy generation for the US economy. Even its proponents admit to that, although they have produced reports suggesting that the overall costs will be very small. They could be right, but should they once again have failed to consider how those small costs will affect the decisions behind the millions of transactions in our daily economy, the final costs could prove to be far higher than they imagine, and the benefits illusory in the end.
