Cap and Trade: Hop on the next bubble before it inflates
June 25, 2009
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It's amazing that the cap and trade bill that is being debated in Congress right now is not receiving more media attention. If it passes, this bill will have a direct impact upon every single person in the United States in the form of a higher electric bill and an indirect impact on them in the form of more expensive goods and services and lost manufacturing jobs.
As someone whose political beliefs tend to be middle of the road, I hate both parties equally, I got sick of all of the press conferences, the Al Gore watch, and CBO studies which significantly underestimate the future cost of the program ($175 per household my bass). So I thought to myself where can I find some good right-wing propaganda to balance the argument out because after all, as I always say the truth usually lies somewhere in the middle. I knew just where to look, Rupert Murdoch's new toy...the Wall Street Journal. And I wasn't disappointed. The WSJ published the following article on the subject of cap and trade today:
The Cap and Tax Fiction - Democrats off-loading economics to pass climate change bill
While the Nancy Pelosi, Henry Waxman, and friends are running around touting the CBO estimate that the new bill will only cost "no more than a postage stamp a day" (what is that now after the inept USPS raised it for the 100th time yet still manages to lose money, a buck?). Here's the right-wingers' estimate of how much the program will cost:
To get support for his bill, Mr. Waxman was forced to water down the cap in early years to please rural Democrats, and then severely ratchet it up in later years to please liberal Democrats. The CBO's analysis looks solely at the year 2020, before most of the tough restrictions kick in. As the cap is tightened and companies are stripped of initial opportunities to "offset" their emissions, the price of permits will skyrocket beyond the CBO estimate of $28 per ton of carbon. The corporate costs of buying these expensive permits will be passed to consumers...
The biggest doozy in the CBO analysis was its extraordinary decision to look only at the day-to-day costs of operating a trading program, rather than the wider consequences energy restriction would have on the economy. The CBO acknowledges this in a footnote: "The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap."
The hit to GDP is the real threat in this bill. The whole point of cap and trade is to hike the price of electricity and gas so that Americans will use less. These higher prices will show up not just in electricity bills or at the gas station but in every manufactured good, from food to cars. Consumers will cut back on spending, which in turn will cut back on production, which results in fewer jobs created or higher unemployment. Some companies will instead move their operations overseas, with the same result.
When the Heritage Foundation did its analysis of Waxman-Markey, it broadly compared the economy with and without the carbon tax. Under this more comprehensive scenario, it found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill's restrictions kick in, that number rises to $6,800 for a family of four by 2035.
I have about as much faith in the conservative Heritage Foundation's estimate of the bill's cost as I do to the postage stamp per day estimate that the Dems are talking about. In reality, unless this legislation causes a huge boom in "green" jobs in the United States that replace the jobs that will likely be lost to factories in countries that have less restrictive pollution policies and the drag on the economy from the reduction in consumer spending that higher electric bills and more expensive goods and services will cause I don't see how the passage of cap and trade is not a major negative for the U.S. economy.
Oh wait, I almost forgot...there is actually one group that will benefit from the new cap and trade legislation. The good old scumbags at Goldman Sachs (whose employees donated nearly a million dollars to Obama and $4.5 million to Democrats in the last campaign...I'm just sayin'). Goldman has spent $3.5 million lobbying on climate issues. The firm currently owns 10% of the Chicago Climate Exchange, where the carbon credits will likely be traded. It also owns a stake in a company called Blue Source, which sells carbon credits. The company has all sorts of ways to make money off of a cap and trade system and you can bet your sweet tail that it would rake in huge money if one is passed.
Two of the larger positions in my portfolio are the clean power companies FPL Group and Exelon. At worst, they are two relatively well-run, conservative companies that pay solid dividends, but if cap and trade passes...look out. I have positioned myself to take advantage of the next bubble before Goldman has a chance to blow it up. Pay close attention to the cap and trade bill that Congress is debating right now. If it passes and actually makes it through the Senate you had better purchase stocks that will benefit from the legislation to help hedge the rising cost of everything else in the country.
Author's note: I'm not against regulating pollution. I think that pollution controls are very necessary. I like animals and trees better than I like most people. As I have said in the past, I'm not sure what is the best solution to the problem...or if carbon is even causing global warming for that matter. I don't think that cap and trade is it. I can see too many people who aren't supposed to be profiting from it doing so. I'd rather see the government raise the gasoline tax by $0.50 per gallon and use the proceeds to fund cheap loans for clean power plants and research on green projects.
Heck, I'd even rather see the government take all of the money that it is peeing away bailing out all of the irresponsible banks and homeowners and use it buy up vacant houses, plow them into the ground, and plant a ton carbon-eating trees. We could kill two birds with one stone, Global Warming and the Economic Meltdown caused by falling home values. I'm only kidding about this idea, but I'm sad to say that it might actually work a lot better than some of the real ideas that have been floating around out there like P-PIMP, TARP, etc...
Deej
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