"Cap & Trade is a Tax... a Big One"

On June 26, the U.S. House of Representatives passed the Waxman-Markey Global Warming Bill by a narrow margin of 219 to 212. Rep. John Dingell (D-Mich.) has called the bill’s Cap and Trade system on CO₂ “a great big” tax.¹

Chairman Henry A. Waxman of the Energy and Commerce Committee has said, “This legislation will create millions of clean energy jobs, put America on the path to energy independence, and cut global warming pollution. Our goal is to strengthen our economy by making America the world leader in new clean energy and energy efficiency technologies.”²

[While Chairman Waxman uses the term “Global Warming,” it is a phrase that is coming under increasingly infrequent use. “Climate Change” is the term environmentalists prefer because the earth is, in fact, no longer warming, and hasn’t for a decade due to a decline in solar activity and other natural factors.]

The Cap and Trade Tax bill in the House of Representatives (HR 2454) is supposed to limit the amount of carbon dioxide (CO₂), a so-called “greenhouse gas,” and spur the development of alternative sources of energy. The bill gives free allowances to some emitters for initial years but not forever; other emitters have to buy them.

CO₂ emitters (manufacturing facilities, oil refineries, etc.) would be given allowances or a “cap” based on past emissions. Those companies that emit less than their allotment would be able to sell or “trade” their excess to those who didn’t make the allotment. Over time, the cap would be lowered, requiring facilities to further cut their emissions. Biomass CO₂ (CO₂ from Ethanol and Biodiesel) is OK and does not need allowances; biomass CO₂ is assumed to be recycled (absorbed by next year’s crop). Only fossil fuel CO2 needs allowances because carbon is removed from the ground as a fossil fuel and adds to an increase in atmospheric CO₂ concentrations when burned.)

The cost to cut these emissions will be huge, as we will see, and may actually slow our conversion to alternative sources of energy by diverting funds from long-term energy research and development to short-term fixes. This bill amounts to a massive tax on energy and a financial windfall for those companies that will manage the trading of CO₂ credits.

Carbon dioxide is the by-product of burning fossil fuels, such as oil, gas, and coal, which provides the United States with almost all of its energy needs. It will be very expensive to move quickly away from fossil fuels. A study by the Charles River Associates puts the annual cost, in current dollars, to a household at up to $1,300³ by 2015, rising to $2,500 by 2050.⁴

The Heritage Foundation’s Center for Data Analysis (CDA) found that, after adjusting for inflation, the government would collect $5.7 trillion in tax revenue between 2012 and 2035. CDA’s economic analysis found that, by 2035, the Waxman-Markey Cap and Trade legislation would:

• Raise electricity rates 90% after adjusting for inflation;
• Raise inflation-adjusted gasoline prices by 58%;
• Raise residential natural gas prices by 55%;
• Raise an average family’s annual energy bill by $1,241; and
• Increase the federal debt by 26%.⁵

At 3 a.m. on the morning of bill’s passage, Rep. Waxman added a 300-page amendment to the bill, which would also force a homeowner to make energy efficiency improvements to a home before it could be sold. These improvements would be made regardless of any neighborhood covenants or zoning ordinances already in place.⁶

Oil refineries are particularly hard hit by the Cap and Trade tax. On June 9, 2009, a chemical engineer who is the vice president of a small Midwest U.S. oil refinery testified before the House Energy & Commerce Committees on Cap and Trade. The refinery employs 1,200 people and produces 3,000,000 gallons of gasoline, diesel fuel and asphalt every day. It is a financial mainstay in Southeastern Arkansas.

Under the current Cap and Trade scheme, a refinery would not only be responsible for the CO² it produces, but also the CO² generated from the fuels it produces. It would cost this refinery $180 million per year to purchase allowances in the first years of the House Cap and Trade program. The cost would rise to approximately $750 million per year in 2050. Compare the $180 million/year cost to the $15 million average annual profit this refinery has made over the last 10 years.

Proponents of the bill say that most of the cost of Cap and Trade can be passed on to the consumer. Even if 90% of the cost is passed on to the consumer, the unrecovered cost would be 150% of the company’s profits. If Cap and Trade is implemented as is, this refinery will shut down and over 1,000 people will be out of work.

The economics of Cap and Trade for this refinery applies to every fuels refinery in the United States. The only way to make up the loss of transportation fuels will be to import them, and other countries are preparing to sell to us. India is building a one million barrel (42 million gallon) refinery for sale to United States and European markets. This refinery is larger than any single refinery in the United States. Under terms of the Senate bill, foreign refineries will not be required to purchase Cap and Trade allowances. This will lead to the closing of U.S. refineries and our country’s increased dependence on not only crude oil, but also gasoline and diesel fuel.

Oil refineries not only make transportation fuels, but also road asphalt and feed stocks for plastics. If Cap and Trade legislation is implemented in the United States, these other products will be reduced as well. Shutting off the fuel that runs the economy will have a disastrous effect on the nation’s GDP. In addition, up to 2.3 million jobs will be lost by 2013 under cap and trade.⁷

Proponents of the bill point to the European-led Kyoto Treaty as a model for lowering greenhouse gas emissions. This is the most ambitious environmental legislation to date. Under the Kyoto Protocols, Europeans have incurred significant costs while failing to reduce emissions.⁸ Almost every European country participating has higher emissions today than when the treaty was first signed in 1997. Furthermore, despite continuing European criticism of the United States for failing to ratify the treaty, emissions in many of these nations are actually rising faster than in the United States.

Kyoto countries can claim they are meeting the Accord’s targets even when the overall emissions are increasing. They can claim this by the use of carbon offsets. Kyoto Accord countries can continue to emit greenhouse gasses in their own country by conducting environmental offset and remediation projects in developing countries. So, a Kyoto country can continue to generate constant CO2 levels in their own country if they “plant a tree” in Sri Lanka.

Even if the Kyoto Accords were fully implemented by the EU and agreed to by the United States, the change in the earth’s temperature would amount to an estimated decrease of 0.07 degrees Fahrenheit by 2050—an amount too small to even verify.⁹ The House and Senate climate bills would at best do only a little more.

The concerning thing about the Kyoto Accords is that it was only meant as a first, modest step in a series of additional commitments. The current bills and agreements in place do nothing to mitigate the largest contributor of greenhouse gasses—water vapor. Yes, clouds contain more greenhouse gasses as water vapor than all the CO² in the world.

While there are still questions surrounding the entire Global Warming issue, most in the environmental movement have pronounced the Greenhouse Gas Theory “settled science” and declare the debate over. Still, much of the proposed regulations are being developed in secret. As one report notes, “Having few tabloid newspapers trailing has perhaps allowed [European] parliament members certain latitude for engagement on difficult issues. Environmental leaders who are able to drive action through their detailed engagement have emerged from both the right and the left.”¹⁰

What is the benefit? Is the economic pain generated by Climate Change legislation justified? Definitely not. Higher energy prices will dramatically slow the United States economy, which will translate into higher unemployment. It is estimated that higher energy prices will raise unemployment by over 1 million jobs on the average, with a maximum of 2.5 million overall.

Using government subsidies for sustaining alternative energy in the U.S. will destroy more jobs than it creates if Spain’s experience with alternative energy is any indication. In a report written by Gabriel Calzada, an economics professor at Juan Carlos University in Madrid, Spain, for every new position that depends on energy price supports, at least 2.2 jobs in other industries will disappear.¹¹

Gross Domestic Product (GDP) will drop over $9.4 trillion and the next generation of Americans will inherit a federal debt of over $28,000 per person.¹² All this pain will come from a 90-year program that will lower average global temperatures by no more than 2/10 of a degree Fahrenheit at the end of the century.¹³

Another component of the U.S. Cap and Trade legislation is to make fossil fuel use so expensive that consumers will look for other sources of energy and thus spur the development and use of alternative energy. Secretary of the Interior Ken Salazar has led the drive away from fossil fuels by canceling oil leases for oil well drilling in Utah, adding restrictions to offshore drilling in the Gulf of Mexico and preventing the exploration of the Arctic National Wildlife Refuge (ANWR), said to be the “Saudi Arabia of the United States.”

This is a planned program by the United States Government to limit energy choices by the consumer. With traditional sources of energy restricted by government fiat, rather than the marketplace, consumers will be forced into new, more expensive energy technologies.

During the 2008 presidential campaign, then Senator Obama told the San Francisco Chronicle:

Let me sort of describe my overall policy. What I’ve said is that we would put a Cap and Trade system in place that is as aggressive, if not more aggressive, than anybody else’s out there. I was the first to call for a 100% auction on the Cap and Trade system, which means that every unit of carbon or greenhouse gases emitted would be charged to the polluter. That will create a market in which whatever technologies are out there that are being presented, whatever power plants that are being built, that they would have to meet the rigors of that market and the ratcheted down caps that are being placed, imposed every year. So if somebody wants to build a coal-powered plant, they can; it’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted.¹⁴ [Emphasis added]

With the House version passed, the bill now moves to the Senate, where it faces a tough fight. Democrats lost a procedural vote (67-27) to “fast-track” the bill, meaning that supporters need 60 votes to pass a bill, rather than 51.

The Senate also passed an amendment (with 54 votes including 13 Democrats) that would effectively block any climate change provision which “cause[s] significant job loss in manufacturing or coal-dependent U.S. regions such as the Midwest, Great Plains, or South.”

Cap and Trade is a re-engineering of the American economy and a tax on the energy consumer, a regressive one at that. It is a tax that will hit the poor much harder than the rich. The poor generally drive older, less fuel efficient vehicles and live in dwellings that are not as energy efficient or environmentally friendly as high cost homes and will be hard hit on energy costs. For an administration that has promised no one making under $250,000 per year would see “one dime” in additional taxes, this will prove to be a heavy tax to those who can least afford it. In 1 Timothy 2:1 we are exhorted that: “first of all, supplications, prayers, intercessions, and giving of thanks, be made for all men; For kings, and for all that are in authority; that we may lead a quiet and peaceable life in all godliness and honesty.”

We need to pray for our leadership, but also, we need to get involved. Contact your legislator(s) and give your opinion on this issue and other issues of the day.

Steven Elwart, P.E. has been an energy industry professional for over 30 years and is a Subject Matter Expert for the Departments of Homeland Security and Energy.