The Amount Almost Doesn't Matter, Because it HAS to Go Higher

Apparently there is some debate about the true cost of Obama's proposed cap-and-trade system - is it $646 billion?  it is $2 trillion.  My sense is that it doesn't matter, because these costs are to the total cost of a full Co2 abatement program what shooting the first monkey into space was to the moon-landing program.

Just to get this out of the way, it is absurd to argue this is anything but a tax on individuals.  It HAS to result in a price increase to individuals, for things like electricity, or it is not working.  Price increases are a core feature of the program, not a bug.  The whole point is to reduce fossil fuel use, and in the near term, with infrastructure fairly fixed, this can only be achieved via reduced electricity consumption.  And, unless you are a fan of rolling brown-outs, this in turn will only be achieved by raising the price.   Long-term this reduction might come from shifts in the mix of electricity producing facilities (ie from coal to gas or nukes) but this takes time, and never-the-less the wholesale replacement of perfectly serviceable electrical generation infrastructure will certainly have a cost as well.

Further, now matter what the initial cost is, the costs will almost certainly have to increase by orders of magnitude over the next decades, if the programs is to have its desired benefits of substantially reducing CO2 production  (currently targeted by the administration as an 80-85% reduction).  How much of a price increase is it going to take for you to reduce your home's electrical use by 80%?  We have examples of parts of the country where electricity rates have doubled in a short period of time, and electrical consumption changed by far less than 80%  (the EPA apparently uses near-term price elasticities around 16%, meaning that a doubling of prices might result in a 16% reduction in demand).

It is probably easier to think about gasoline use (though this initial system will not apply to most transportation uses).  Last year, gas prices doubled.  Did your driving go down by 80%?  Probably not, since a doubling of gas prices reduced driving and demand by about 5-10%.  How high would the price of gas have to go to get you to really cut back your driving by 80%?  Europeans have $8-$9 a gallon gas, and much more onerous regulations on fuel economy in cars, and their per capita consumption has not fallen 80%  over the last decades  (Germany's per capita gas consumption, for example, has dropped about 20% since 1990).  How high will our gas prices have to go?

According to climate alarmists, Co2 levels in the atmosphere have already passed a point of no return leading us to a tipping point and rapidly accelerating temperatures.  As a result, again according to alarmists, incremental reduction steps that slightly slow the rate of increase of Co2 are useless -- only enormous reductions in Co2 output that result in declining world Co2 levels will suffice to save us from doom.

What this means is that Obama's cap-and-trade scheme as currently configured is both expensive AND useless, as it will, by almost any estimation, make only a trivial dent in Co2 growth  (similar to the Kyoto treaty, where even supporters admit that full compliance would have made an immeasurably small difference in global temperatures).   A real plan that would actually hit the goals he has set for us would be so expensive as to make even $2 trillion seem cheap.  This is just a toe in the water, to set up the infrastructure -- the real cost increases come later.  Using a fairly crude analogy, Obama is merely grabbing the waistband of our underwear now -- he won't start to pull and twist until later.


  1. Ben:

    How much should the Tongans be taxed to stop this happening?

  2. Jeff:

    I don't think cap and trade will ever make the floor of the House or Senate. It's economic and political suicide, for both Democrats and Republicans.

    In fact, I think the Obama administration is counting on it failing. They want to be able to use CO2 abatement as a campaign issue, painting the Republicans as obstructionists and global warming deniers, the last thing they want is for it to pass.