Cap-And-Trade, a look at farcical legislation

The House of Representatives passed a Cap and Trade bill last week. The bill seeks to address climate change concerns and how the United States produces and uses energy. The bill sets limits, caps, on emissions of heat-trapping gasses (i.e., carbon dioxide) while some industries, such as energy production, will be allowed to trade pollution permits or allowances among themselves. If passed by the Senate it could be in effect in 2012.

The idea behind Cap and Trade is to steer business toward less ‘greenhouse gases.’ It’s a nice utopian idea to encourage alternative energies, but the steps implemented to achieve this end are faulty. The harmful business and economic hurdles created by the bill would yield an end contrary to the stated goals.

The presumption is that as costs of energy production and use increase over the years, from fees and costs created by the bill, companies will be motivated to find cleaner ways of making and using energy. It won’t work because it only applies to U.S. companies, these are not worldwide emission standards. The bill burdens U.S. companies with the built in disadvantage of additional production costs. This would result in U.S. companies producing less energy because of these costs.

‘OK,’ an advocate will say, ‘the company produces less heat-trapping gases, so the climate change concern is successfully addressed.’

‘Not so,’ is my retort. The Cap and Trade regulations will push U.S. energy companies to produce less, even close plants, and seek to make up demand by increasing their imports. The non-U.S. companies produce the same product, but under less restrictive pollution and emission regulation. So the end result is actually more heat-trapping gases or greenhouse gases, the very thing the bill is hoping to reduce!

Energy companies based outside the U.S. would also be operating at an advantage; (1) it costs less for them to produce and refine than U.S. companies and (2) they would have increased demand because there is less supply being produced by their U.S. competitors. In addition, this increased import demand has the unfortunate result of making the U.S. even more dependent on foreign oil.


I offer a better idea than penalizing the energy producers to reach a desired goal. Just create a reward. If you want green energy, incentivize the desired behavior.

Example: Give tax breaks or incentives to reward the desired behavior of researching and developing alternative energy. For tax purposes, treat these clean energy or renewable energy producing companies as nonprofit organizations during their Research & Development stage. Once a product is ready for market, decrease or phase out these tax incentives.

A rewards-based incentive plan would have the illuminating effect of putting the U.S. alternative energy producing companies at a global advantage!


Cap and Trade does not do this. It attempts to penalize into submission. Here’s one kid that hopes Cap and Trade meets defeat in the Senate.
-klem