The economics behind cap and trade


Why the power industry is "caving" on global warming. It's not good intentions.
OpinionJournal.com has a marvelous article on the real maneuvering behind the push for cap and trade to limit carbon dioxide.

The difficulties don't lie with the trading, but with the cap, which is where the companies lobbying for restrictions come in. James Rogers, CEO of Duke Energy, put it plainly earlier this year: "If you're not at the table when these negotiations are going on, you're going to be on the menu." Translation: If a cap is coming, better to design it in a way that you profit from it, instead of being killed by it.

Which is why the emphasis really should be cap-and-trade. It's all about the cap, because without it there's no trading. We don't buy our daily ration of oxygen because it's in abundant supply. Same with carbon dioxide--there's no constraint on your ability to produce CO2 until the government creates one. When it does, it creates an artificial scarcity. What Duke, Entergy, TXU, BP, Dupont and all the rest want is to make sure that when the right to produce CO2 becomes limited, they're the ones that end up owning the allowances. Because that would mean they could sell them, and make money off something that previously wasn't worth a dime.

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We don't begrudge anyone the opportunity to make a buck. But there's a difference between making money by producing things people want and making money by gaming the regulatory process. There's no market here unless the government creates one, and who has the profit opportunity depends entirely on who the government picks as the winners and the losers in designing this market in the first place. So it's no wonder that almost any business that has ever put an ounce of CO2 into the atmosphere is rushing to show its cap-and-trade bona fides.

Make no mistake, what you are seeing here is the beginnings of a very profitable relationship between entrenched business interests and government. It will also lock out new business in the regulated field, which means more expense and less consumer choice.

But there is a further aspect that no one is talking about yet. In addition to regulating and taxing the carbon dioxide emissions, the FedGovs stand to make a healthy profit. After all, the Federal government operates Hoover Dam and several other hydroelectric plants. Once the cap is put in place, the politicos can sell the credits from those plants to industry.

Still not convinced it's a bad idea? Well, you should know that Enron planned to corner the market on carbon dioxide credits, just as soon as the Kyoto Protocol was ratified by the United States Senate. It was why executives and lawyers from Enron helped write the Protocol in the first place.

— NeoWayland

Posted: Sat - March 3, 2007 at 05:11 AM  Tag


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