Coyote Blog

There are a lot of incredibly good reasons to favor a carbon tax over cap-and-trade if we simply most reduce CO2 emissions.  Even a minor inspection of the inner workings of the California Air Resources Board under their AB32 cap-and-trade style program provides lists of examples of abuses, rent-seeking, inefficiency, etc. under cap-and-trade.  But Joe Nation, one of the California legislators who authored AB32, told me that he could not get even a 5-cent gasoline tax through a legislature that enthusiastically embraced the 100x (or more) expensive AB32.  Why?  Silly rabbit, because public costs of cap-and-trade can be fudged, hidden, ignored, and, when they absolutely have to be recognized, blamed on private companies.

Via a reader, here is our Arizona governor discussing the costs of cap-and-trade in Arizona:

Napolitano brushed aside questions of what effect the plan will have on utility rates.

"First of all, that it may increase electric bills doesn't mean it will increase them now," Napolitano said.

Brave, isn't she?  They are already preparing the story line to blame private industry for future price increases:

Napolitano said there is "lots of data" to suggest that utilities
eventually will be able to save money "by moving to a system of 'green'
energy."...

Fox said that, on a long-term basis, there may be cost savings.

You get that?  We smart government guys conducted a lot of really high-power circle jerks among graduate students and the consensus was that forcing the electrical industry to obsolete much of its current capacity and rebuild with some other uproven but more expensive technology would save them money in the long term.  If utilities raise prices, it's because they were not smart enough to figure out what we already know and they are just greedy capitalist pigs so blame them for the price increases, not use faithful public servants.  You see?  Cap-and-trade is like money laundering for taxes.  The tax is there, but its hidden well enough that a lazy media will not bother to trace it back to its owner.

But I wouldn't want you to take my assertion on faith (as Obama does with his 5 million green jobs promise), so lets look at what will have to happen.

The exact goals are hazy, but it appears our governor has committed the state to cutting CO2 emissions by 15% over the next 10 years.  One of the main ways that calling CO2 "pollution" is misleading is to imply it is some kind of combustion by-product, like soot or SO2, that could be scrubbed out.  But it is not.  It is fundamental to combustion.  So a 15% cut in CO2 emissions is 10-15% cut in power generation  (we likely get numbers lower than 15% by assuming cuts in production are preferentially from higher carbon sources like coal plants). 

So, basically this law requires the state's electrical utilities to obsolete 10% of its installed capacity, and either a) have tons of rolling blackouts; b) raise prices enough to force a large cut in demand  (remember, demand must be cut 10% AND all future growth must be halted); or c) the industry must spend hundreds of billions of dollars to build a ton of capacity in some other technology.  Option a will never fly politically.  Option c is almost sure to fail as well.  The permitting and construction processes can take decades.  From a cold start, I don't think its possible to rebuild 10+% of the states generation capacity in 10 years, either in nuclear or some other not-yet-ready technology.  The numbers simply don't work.  The only possible way I can imagine is maybe to install a zillion natural gas turbines, but to make the CO2 balance work out, you probably would have to rebuild 15% or more of the capacity, not just 10%, because there would still be some carbon emissions. 

Really, realistically, one is left with option b.  Prices are going to go up (just they would have to in option c to pay for replacement production capacity).  The price increases would be about as much as the carbon tax would have had to be to get the same effect, but price increases are corporation's fault while taxes are politicians' fault.  See?  The only good news is that the price increase will go to private players rather than the government.  That is until someone thinks to put in a windfall profits tax on utilities that are making lots of money on the government-enforced shortage.