Democrats in Washington reflexively look to the government to provide solutions, evidenced by nationalizing Freddie Mac and General Motors, bailing out AIG and other institutions too-big-to-fail and offering myriad and complex proposals to socialize our healthcare system.
When it comes to the climate change debate, it is curious to hear Democrats tout the virtues of the invisible hand – the ability of the free market to discover the most efficient way to reduce domestic emissions of carbon dioxide. Yet this is the rhetoric around Cap-and-Trade as Congress prepares to vote this week.
Americans should not be fooled.
Democrats have not suddenly awakened to the principles of free market economics, adopted them wholesale, and incorporated them into an aggressive legislative agenda to reduce carbon emissions. On the contrary, the Democrats remain fully committed to market intervention, federal mandates and government subsidies.
The imposition of carbon caps and the creation of a carbon market – key components of the Democrats’ plan – are subtle attempts to raise taxes and increase government spending. Except with this scheme, new taxes and higher spending are disguised by terms like “allowance” and “offsets.” But don’t let the doublespeak fool you. Cap-and-Trade, like any other tax, takes money out of your pocket and gives it to politicians and bureaucrats in Washington to spend.
Basically, the scheme establishes a system whereby the Federal Government caps the maximum allowable emissions of carbon dioxide. Major emitters are then required to have allowances that account for their yearly emissions. If the emitters are not able to make the necessary reductions, they can purchase additional allowances and offsets on a newly created carbon market.
These allowances are very valuable. Initially, President Obama wanted private companies to pay the government for 100% of the value of the allowances in order to avoid windfall profits. However, there was very little appetite in Washington for a 100% auction. So Henry Waxman and Nancy Pelosi crafted a bill that would give away for free 85% of the allowances, subject to exclusive Congressional discretion.
Not surprisingly, the opportunity for more government handouts has increased the number of lobbyists representing affected industries by 14 % in the first four months of this Congress. In exchange for the allowances, these groups have agreed to support the legislation, which effectively carves out an environmentally-friendly pay-to-play system that gives politicians another way to earmark themselves into flush campaign coffers.
Several independent studies, by the Coalition for Affordable American Energy, the National Black Chamber of Commerce, and the Heritage Foundation, predict that the burden of cap-and-trade will range between $730 and $3,000 per household, no small burden for working families in this economy. For some families, paying the carbon tax means they will not be able to purchase a new car, for others it could mean holding off buying clothes for the school year or fewer groceries every week.
Ironically, this allowance market is not even necessary to achieve reductions in greenhouse gasses. In fact, America already possesses the innovative technologies – like nuclear energy – that promise to advance low-carbon energy alternatives, but Democrats in Congress aren’t interested in sensible solutions when a massive tax is in view.
Even the degree to which cap-and-trade is able to address climate change is in question. David Sokol, Chairman of MidAmerica Energy Holdings Company recently explained to Congress, the Waxman/Markey trading mechanism “will not reduce greenhouse gas emissions by one ounce.” Instead, according to economist David Montgomery, “allocations do shift who bears the burden across industries, regions, and income groups.”
Establishing a mandatory carbon market merely enables politicians to obscure the cost of a back-breaking and complex new tax scheme, and Americans should not be fooled by the slick packaging. They won’t be fooled by the skyrocketing energy bill they’ll start receiving if Cap-and-Trade becomes law.
Congressman Issa represents California's 49th congressional district and serves on the House Committee on Oversight and Government Reform.