Wayne Winegarden

In the “Ship of Fools”, Sebastian Brant remarked: “The world wants to be deceived”. We want perfect abs in only “5 minutes a day”. We want fat free ice cream that actually tastes good. And, in this vein, environmental activists claim that global warming regulations actually create economic growth. Such a claim simply throws common sense, and good economics, out of the window.

The most popular global warming regulatory scheme is called cap and trade regulations that limit industrial emissions of greenhouse gases. Because of our current technology constraints, limiting U.S. emissions limits our use of energy and, consequently, our economic growth.

Despite the energy constraints, a recent EPA analysis comes to a different conclusion. When evaluating the impacts from cap and trade regulations on the U.S. economy, the EPA actually claims that our economy will grow at basically the exact same rate over the next 20 years regardless if we impose cap and trade regulations or not. Other studies have gone even further. Professor Daniel Kammen from U.C. Berkely, in testimony before the Senate Committee on Environment and Public works claimed that global warming regulations would help create:

“A new wave of job growth – both ‘high technology’ and ones that transform ‘blue collar labor’ into ‘green collar’ opportunities. The combination of economic competitiveness and environmental protection is a clear result from a systematic approach to investing in climate solutions.”

Fred Krupp, president of the Environmental Defense Fund, explained the logic behind these claims in a recent Wall Street Journal editorial. According to Mr. Krupp, there is no shortage of entrepreneurs trying to bring innovative clean energy technologies to market; and these technologies are nearly ready for prime time. But, without cap and trade regulations, the financial support behind these technologies is insufficient. Once a cap and trade regulatory regime is established, billions of dollars will flow to these entrepreneurs and clean technologies will be a reality.

Krupp’s argument defies its own logic. Throughout the history of the United States, entrepreneurs have been bringing new and better technologies to market in response to consumer demands. Surely, the public would willingly purchase environmental friendly products that are of similar quality and price to our current technologies; for instance using solar energy for home electricity as opposed to using coal energy. If this is the case, then entrepreneurs and financiers have an incentive to bring these new technologies to market with or without cap and trade legislation.


Wayne Winegarden

Wayne H. Winegarden Ph.D. is a partner in the firm Arduin, Laffer & Moore Econometrics.

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