Will Cap and Trade Cost American jobs?

Discussion in 'Economics' started by rubibond007, May 30, 2009.

  1. http://agmetalminer.com/2009/05/29/will-cap-and-trade-cost-american-jobs/

    An interesting article in the New York Times charting progress on the cap and trade greenhouse gas emissions climate bill explains how consensus has been maintained by the granting of free allowances to emitters to mitigate the cost of implementing the bill’s limits. The caps would gradually tighten over time. But the allowances would allow those parts of the country most reliant on heavy carbon emitting industries to reduce the financial impact – effectively subsidizing states that rely on coal fired energy at the expense of those blessed with hydro-electric power sources. The gulf is huge. Washington state for example emits 0.15 tons of CO2 per megawatt whereas Indiana emits nearly 1 ton per megawatt.

    So as the bill takes one step closer to reality, we thought a closer analysis of how the government would address the fallout for manufacturers would be an appropriate topic for MetalMiner. For make no mistake though we are in favor of the environment, and most would agree that reducing carbon emissions is in the long term interests of all of us, there will be winners and losers from such a massive government intervention in the dynamics of the economy. The whole purpose of cap and trade is to place a financial burden on emitters to force them to change. This means raising prices over time.

    The financial implications for CO2 emitters will progressively impact up to 2015 at which point all the allowances will have been given away. The electricity industry would get 35%; local natural gas distributors, 9%; “trade exposed” industries, 14.2%; then oil refiners, automobile manufacturers and energy companies investing in carbon capture and storage split another 6-7%. Trading could result in a price of between $15 and $20/ton of CO2 according to the US EPA, so the sums involved are around $80 to 108 billion per year.

    To quote the NY Times article, “Oil refiners and manufacturers of chemicals, paper, cement and metals will be vulnerable. So will companies that face tough U.S. or foreign competition that make it hard to pass on higher energy prices.” Any industry active in internationally traded goods or products where the price is set on world markets by competitors who are not subject to cap and trade – think steel, aluminum, copper, nickel, etc etc will feel an impact. Companies facing rising costs due to higher energy and/or costs associated with direct cap and trade penalties will face the greatest competition as foreign suppliers are able to undercut them. In addition they will have the greatest incentive to move manufacturing overseas to locations where CO2 emissions are not taxed. Primary metal production was highlighted by the Holmes Hummel report as one of the four most at risk categories. There are two possible outcomes:

    Manufacturers of basic metal products could move production overseas. The Carbon Leakage Prevention Act seeks to prevent this by compensating companies that face competition from overseas via an output-based rebate program. US based emitters would receive a rebate set around the industry average for every ton of metal they made in the US.
    The other is that a tariff is applied to imported goods from countries that do not operate a CO2 cap and trade system. The drawback is that products made from carbon intensive materials – automobiles made from steel – would benefit from this system as domestic automobile makers were forced to pay higher costs for their steel compared to their overseas competitors. The result could be either for those metal consuming manufacturers to move overseas or for lawmakers to impose tariffs on all steel containing products coming into the USA. What a nightmare that would be.
    As an article by the Heritage Foundation observed, the introduction of a cap and trade system has the tendency to invoke protectionist policies and is fraught with possibilities for law makers to pad their pet industries or areas with special concessions.

    Primary metal producers are much more likely to seek protection or subsidy behind output-based rebate programs or import tariffs. But downstream consumers such as autos, white and capital goods, in fact any US manufacturing firm that consumes metal is likely to be among the biggest losers, particularly if they face international competition or currently enjoy a level of export business. Inevitably taxing CO2 emissions will cost American jobs, may be not as many as some detractors suggest but for some consumers shifting future investment to overseas plants may be the only answer. Cap and trade alone will not be the deciding factor, energy costs, availability of raw materials, and so on will all play a part in plant location. Hopefully, the gradual introduction of the effects will give firms time to adjust and time for the developed world to persuade the developing world of the need to adopt comparable regimes – thereby keeping the playing field as level as possible.
  2. It will put American manufacturers at a HUGE ADDITIONAL cost disadvantage to other global producers, and therefore they will either be forced to move production to those lower cost places, or lose customer orders, or have to sell at a loss to get orders. In addition, it will complicate things for anyone trying to start a business, and anyone already producing.

    End result many more lost jobs, if it wasn't terrible already.

    If they want to discourage the use of non-renewable fuels, why not just tax them per btu consumed at the point of sale. Very simple, and all of a sudden renewables would be cost competitive without any subsidy needed. Reduce regressive payroll taxes at the same time to prevent the additional tax from hurting the economy overall.
  3. tman


    The only problem with this is that the administration can't play politics and bail out particular industries, companies, unions, etc.
  4. But they are. Apparently the coal producers get a free pass here. No way would cap & trade be passed with the huge energy industry in the US.

    The US is even said to be the only bastion left to global cap & trade. It takes some time to convince the energy industry, and it mainly is about giving them free money.

    At the end of the day, cap & trade will do nothing to save the planet and only be an additional, complex layer of taxes and control.
  5. Which is exactly what this administration wants.
  6. pspr


    But Al Gore will make a fortune off cap & tax and probably get another Nobel prize for ruining America. Ever since he lost his bid to be president he has been trying to find a way to make the voters pay for their "mistake".
  7. clacy


    This will go down as the biggest economic blunder in the past 50 years, IMO.

    This is the type of thing that has long lasting ramifications and could burry the Dems for decades if they botch up the economy worse than it already is. I'm not an economist, but I don't see any way in which Barack's policies have helped or will help the economy.

    Cap & Trade = Cap, Tax & Redistribute

    As someone else said earlier, this isn't about the environment as much as it is about the government controlling more of the money in the US and redistributing it as they see fit (where it benefits them the most).