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":

"Even as the use of coal for generating electricity has nearly tripled over the past 30 years, emissions from coal-based power plants have been dramatically reduced through the use of advanced technologies. Today's coal-based electricity generating fleet is 70% cleaner than it was in 1970 (based upon emissions per unit of energy produced)."

That's the power of the cap-and-trade market for sulfur dioxide emission credits – it's been so successful that even the coal industry front groups want to claim it as their own.

And just as the utilities and naysayers were wrong about the costs of the sulfur dioxide market, they'll be wrong about the costs of the carbon market too.

It's not a tax, it's not even cap-and-trade – it's carbon capitalism.

 

(Originally published at Scholars & Rogues)

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