Monday, June 29, 2009

The cap and trade delusion

HT: Rich Karlgaard

The Waxman-Markey bill that was rammed through the House last Friday—so fast that no one had a chance to read the 300 pages that were added to the bill in the wee hours of the morning, much less to give the thing some healthy debate since it purports to do nothing less than drastically alter the way the U.S. economy uses energy while saving the planet—makes some heroic assumptions that really need exposing before the Senate takes up debate on cap and trade legislation later this summer.

The whole purpose of cap and trade is to raise the cost of hydrocarbon fuels so that a) we use less of them and more of other fuels, and b) thus reduce mankind's carbon footprint in the hopes of saving the world from destructive climate change. We all know that the U.S. economy depends heavily on oil for its transportation needs. We are less aware that electricity is absolutely critical to just about everything else that takes place in our modern economy.

As this chart (which uses wikipedia data) shows, about 70% of the electricity consumed in the U.S. comes from carbon-based fuels, and 19% comes from nuclear power plants. 10% comes from renewable energy sources, while the lion's share of that comes from hydroelectric dams. Nuclear power plants are not going to be increasing in number any time in the foreseeable future, even if Washington should suddenly turn nuke-friendly. Similarly, we're not going to be adding appreciably to the number of hydroelectric dams.

So most of the hopes of Waxman-Markey for the salvation of the planet rest on whether we can make really monumental changes in the mix of electricity generation: way less from hydrocarbon fuels and way more from renewable sources. If we want to cut hydrocarbon fuel consumption for electricity generation by, say 50%, we're going to have to increase renewable fuel use by a factor of more than 10 (i.e., from 3% to 35%). That's just not going to happen in one or even two lifetimes. And to even attempt it would be monumentally costly, since carbon-based fuels are much cheaper than renewable fuels.

Waxman-Markey also makes the huge mistake of neglecting the consequences of forcing the U.S. economy to use more expensive energy. As Peter Huber points out in his excellent essay "Bound to Burn," the poor countries of the world are the ones that control most of the world's carbon (e.g. petroleum, coal, and rain forests). Any attempt by us to limit our use of carbon-based fuels could be easily overwhelmed by poor countries' decision to use more. And as even Obama now realizes (thank goodness for small favors), we can't resort to tariff barriers to keep out cheap goods produced by countries that continue to use cheap carbon-based fuel.

Heroic attempts to push the U.S. economy in a direction that is going to be very difficult if not impossible to achieve, in the name of saving the planet based on climate models that have never proven their predictable power, are misguided to say the least, most likely extremely costly, and almost certainly ineffective in the end. Meanwhile, it is a given that they will be massively inefficient, while leading to widespread corruption and waste. Can someone please save the planet from the politicians?

UPDATE: Peter Ferrara has written an excellent article exposing the absurdities of the cap and trade legislation: Cap and Trade Dementia.


alstry said...


I would love to know what you are drinking....I really could use some.

I agree 100% on your perspective on CAP and Trade. It will be devastating.

Things are so bad out there it is amazing few really seem to have a decent perspective.

The only thing keeping this ship afloat is government spending, directly and indirectly accounting for over half the current GDP based on my analysis.

Half of all Federal spending is now simply borrowed money...over a quarter of state and local spending is deficit spending.

If government spent anywhere close to the revenues it was generating, we would be in a Depression tommorow morning.

Health Care would basically shut down.......over ten million government workers would be fired immediately and five million health care workers would lose their jobs as well.

California alone has 300K home health care workers....300K in one state for one segment of health care. It is insane how much of our economy is simply borrowed spending, government spending, and health care spending.

Basically our entire economy is one BIG ponzi scheme of borrowed spending that is unraveling quickly.

We move people from being unemployed to welfare so we don't have to count them as unemployed??? WTF is that all about.

Just as Markopolous was sure about Madoff, Alstry is confident about what is about to happen.

At this point, just sit back, have a bloody, and we will both see what happens.....unless of course a distraction comes our way first, which I place at a even money bet between now and the end of Summer.

W.E. Heasley said...

Excellent information.

Purely from a economic perspective:

*The 1970’s - 1981 economy/recessions suffered “oil shocks”.

*Cap and Trade would create something larger. Rather than a 1970’s “oil shock” it would be “all energy shock”. Add in electricity and natural gas to the oil shock equation this time around.

*There was a cascading price increase effect for producer products and consumer products in the 1970’s due to the oil shocks. The oil shocks of the 1970’s came with Supply decrease and the consequential price increase with constant demand.

*The higher oil costs of the 1970’s left consumers with less disposable income. Meanwhile, the consumers armed with less disposable income found consumer good and services rising in cost. Less disposable income in the face of rising prices. Then came spiraling wages followed by higher prices. At the height came 21% mortgages, +10 inflation rate, money market funds pay 15%, and high persistent unemployment. That was the 1970’s.

Cap and Trade might well be the 1970’s Oil Shocks.

alstry said...


Do you ever get the feeling that California is shutting down???? Imagine the additional impact of Cap and Trade!

Maintenance at Sacramento city parks will be reduced, park restrooms will be shuttered at nearly every park, and 13 day camps run by the city will close beginning next week -- part of the city's massive budget cuts.

The cuts take effect July 6.

Recreational swimming will stop at five city pools, while open swim at other pools will be closed one day a week, a city press release issued today states...
Restrooms will be closed at all parks but McKinley and Land Parks - both of which have their own maintenance crews.

Parks maintenance cuts come as dozens of workers are scheduled to lose their jobs Thursday.

OAKLAND, Calif. -- The Oakland City Council is expected to decide Tuesday on a proposal that would cut millions of dollars from the Police Department's budget.

With the city facing an $83 million budget shortfall, council members are considering slashing 10 percent of the department's personnel budget.

Protesters had gathering at L.A. Unified headquarters to voice their displeasure over the school district’s budget.

Unified officials have already slashed almost $570 million from this year’s books, stopped offering most summer school classes and issued preliminary layoff notices to nearly 2,200 teachers in an attempt to balance the budget. summer school, thousands of teachers fired, fewer police officers in high crime areas, no bathrooms in the parks........

And we havn't even contemplated State cuts.

Bruce said...


This information, the Honduras article,etc. need to be read by every American. Any suggestions on how to get the word out most effectively to let everyone know the path we are being led down. Thank you for all you do.

All my best,


Donny Baseball said...

The Waxman-Markey bill is indeed dangerous, but more importantly, the circumstances and nature of its passage in the House last week indicate that our democracy is broken (at least the way it is carried out by current office holders), which is far more of a dangerous situation.

alstry said...

Now you kids are learning.

In a fraudulent environment, economics is a worthless discipline.

As an attorney, an expert in fraud analysis, and one who has litigated corporate issues involving fraud at the highest levels.....

Never in my career, or in American History for that matter, has fraud been so prevalent in American accounting, politics, and corporate behavior.

You are all about to be in for one wild ride that historical perspectives will provide little insight.

Just ask Bernie's clients.....

Scott Grannis said...

I'm figuring that with all these crazed initiatives floating around, sooner or later the public is going to figure out that fiscal policy is spinning madly out of control. Obama's overreach makes the first two years of Bill Clinton look timid in comparison. And that was followed by a sweeping change in Congress.

Scott Grannis said...

Bruce: Thanks for the support. I wish I knew how to spread the word faster.

Paul said...

this is just depressing: