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Cap-and-Trade is Carbon Capitalism, So Why Do Capitalists Hate It?
American-style capitalism, sans regulation, has earned its present bad rap. Even so, some market mechanisms do work quite well.
Markets discover commodities pricing and keep costs low, and they are very efficient at making sure that metals, oil, food, etc. are moved to where the demand is highest from where the supply is greatest. A market in traded sulfur emissions imposed by the Clean Air Act has enabled fossil fuel plants to reduce sulfur dioxide emissions (the main source of acid rain) dramatically since that market’s inception.
And soon, President Obama and the Congress will catch up to New England and the European Union with a new vision for capitalism – carbon capitalism.
Carbon capitalism involves a cap-and-trade market for carbon dioxide, and it makes a lot of sense. Just like sulfur dioxide, CO2 emissions from different sources mix with each other in the atmosphere, and for this reason trading emission credits between one source and another is physically viable. Add in the ability to bank emissions credits, and you’ve got the makings of a complete carbon market and financial system.
So if cap-and-trade is really carbon capitalism, why do so many supposed capitalists hate the idea of a market in CO2?
Simply put, it’s politics.
John Boehner is supposedly a free-marketeer, yet he called carbon capitalism a “code for increasing taxes.” OneNewsNow quoted Dan Simmons of the Institute for Energy Research as saying that carbon capitalism would be “the largest tax increase of all time of all American history and probably all world history.”
The conservative, pro-business National Center for Policy Analysis called carbon capitalism a “$646 billion cap-and-trade tax.” And a short piece on the pro-business, libertarian website American Thinker says, “Paying more for energy as a result of federal policies is not considered a “tax” because after all, it’s not going to be called that. It will be named 'Cap and Trade' – but the effect will be exactly the same.”
Even the Wall Street Journal, that very bastion of business and capitalism, has called carbon capitalism Obama’s “carbon tax policies,” “a cap-and-trade tax,” and “cap-and-tax.”
You’d think that, if anyone would understand the fundamentally capitalistic nature of cap-and-trade, the Wall Street Journal would.
Put bluntly, politicians and partisans aren’t above hypocrisy or the abandonment of their supposedly treasured ideals for political advantage.
Carbon capitalism is just that – capitalism. It may increase the price of energy somewhat, but that happens any time a market externality is priced. When the price of a commodity rises, the price of products made with that commodity rise similarly, but you don’t see corn or oil commodities traders shouting that we shouldn’t trade corn and oil simply because the price of tortillas and plastic sometimes goes up.
All of that trade is capitalism in action – putting money to work for the nation’s and the world’s best interests. The only difference is that this time the government is creating the market because businesses won’t. Business doesn’t want to discover the price of carbon because they currently emit it for free – except it's not free. The environment and the public are left picking up the tab.
The same thing happened with sulfur dioxide a couple of decades ago.
Back then, the utilities claimed then that the sulfur emissions cap-and-trade system would put them out of business. It didn’t. The utilities also predicted skyrocketing energy prices as a result of the sulfur cap. That didn’t happen either. What did happen is our air and rivers and lakes got a lot cleaner as a result, and the people got healthier too. And now the American Coalition for Clean Coal Electricity touts the results of that government-required market as a reason that “coal is clean”:
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Saving economy & the environment by following '10 commandments'
The effective restoration of the global economy {and forward movement toward the preservation of the environment} could be initiated so simply, sensibly and responsibly………………. by following ‘Ten Commandments’ for Economic Revitalization.
http://www.ft.com/cms/s/0/5d5aa24e-23a4-11de-996a-00144feabdc0.html
Ten principles for a Black Swan-proof world
By Nassim Nicholas Taleb
Published: April 7 2009 20:02 | Last updated: April 7 2009 20:02
1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.
2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.
3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.
4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.
5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.
6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.
7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.
8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.
9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).
10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.
Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.
In other words, a place more resistant to black swans.
The writer is a veteran trader, a distinguished professor at New York University’s Polytechnic Institute and the author of The Black Swan: The Impact of the Highly Improbable
Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
http://sustainabilityscience.org/content.html?contentid=1176
http://sustainabilitysoutheast.org/index.php
Is this post a joke?
Of course it is going to raise prices of electricity and everyone uses electricity. Which means the price of milk is going to go up because dairy farms use power. Cars will be more expensive because they use power. The only thing that might not go up is cage free chickens and the cost to raise horses in fields (although the cost of feed for both will be more expensive because it takes electricity to process the grains). Cap and trade "carbon capitalism" is an indirect tax that the government is going to be dipping their hands into to get more money. Even President Obama back in January 2008 said that cap and trade "carbon capitalism" would make power bills "skyrocket". He said that if people build more coal plants, which currently create 49% of our electricity, he will tax them so much with this cap and trade that they will go bankrupt.
Please understand that corporations do not pay taxes, they pass the cost along to the consumer. That you and me. If it costs more money for Mobile to create gas, they don't lose profits, they raise the price of a gallon of gas. If the price of meds goes up, health insurance companies don't take a hit on their profits, they raise the price of insurance on the individual.
That points out that if it is going to cost the power company more money to burn coal, then it is going to cost us more money to run a light bulb so we can see at night.
I don't know much of the Sulfur dioxide cap but I do know that burning coal is burning carbon. Coal is carbon. That means we won't be able to use coal, which we have in the USA, which gives us 49% of our electricity. I know I repeat it but it seems important to me.
I hope I left some spelling errors and grammer errors so people can more easily discredit what I say.
You Missed the Punchline
Dear Mr. Anonymous,
You just repeated the arguments which this article refuted. And you do not factor in an imperative: the need to reduce GHG emissions. Dumping CO2 into the atmosphere has a cost attached to it, even though no one pays for it now. So Mr. Angliss is discussing how to understand that incorporating this cost into the economy is an extension of capitalism, rather than a new tax, which is a political label.
What will happen when carbon gets priced is that it will be slowly squeezed out of the economy by free market forces. Those who emit less will profit more.
It's a necessary rule change in the same game that will realign many things, so that we can live more sustainably.
It's worth noting this article called "It's a Price, Not a Tax" from New Majority, a blog devoted to building a new conservatism: http://www.newmajority.com/ShowScroll.aspx?ID=74116bd8-07e8-40f8-b488-88...
In it the author writes:
"I am sure some messaging wonk thought characterizing climate legislation as a tax increase would score political points in a bad economy, but it is exactly this kind of shortsighted thinking that has eroded public faith in Republicans’ ability to recognize and solve the nation’s problems.
By framing the costs associated with reducing greenhouse gas emissions and lowering America’s dangerous dependence on oil as a tax, Republicans are boxing themselves firmly into the corner of climate change skeptics and forgoing any role in -- or credit for -- solving the problem."
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