The market distortions imposed by a cap and trade system would be significant. Recently, major energy companies such as ExxonMobil and Shell have invested hundreds of millions of dollars in technologies that capture and store carbon as well as lower carbon alternative energy sources. A cap and trade system however, sets up perverse incentives that will distract these and other companies from market-based solutions to curb carbon output. Resources instead will be funneled to the artificial market for carbon allowances that cap and trade sets up.
8. It threatens to put the U.S. at a competitive disadvantage with other countries:
Though the E.U. and the United States may be buying into cap and trade, industrial giants like China and India are not. Remember the lost jobs we talked about in point #4? In addition to China and India, nearby Mexico (another country where cap and trade is not even a remote possibility) are more than willing to pick up the U.S. slack and bolster their already robust manufacturing sectors.
9. It opens the door to massive fraud and corruption:
As energy companies look to game the system, cap and trade would open the door wide for fraud and corruption that could devastate U.S. investors and the economy as a whole. This has been seen already in the UK, a country currently participating in cap and trade. In a recent article by the British-based Guardian newspaper they report: “Britain’s biggest polluting companies are abusing a European emission trading scheme (ETS) designed to tackle global warming by cashing in their carbon credits in order to bolster ailing balance sheets.”
In the United States we have seen what happens when companies engage in creative accounting measures to hide losses and the staggering domino effect it can have on Wall Street investors and the larger economy. If you need more proof of this threat, look no further than this report by The Competitive Enterprise Institute that discusses Enron’s support for a cap and trade scheme that would allow them to dominate this new, made-up market for carbon.
10. It threatens to bust the federal budget at a time when the United States can scarcely afford it:
Federal spending continues at a breakneck pace. The recent passage of the trillion-dollar stimulus bill along with even more taxpayer funded bailouts looming on the horizon add to U.S. budget woes and sink us deeper into recession. And as if times weren’t tough enough, the CBO reports that cap and trade would heap additional undue pressure on our fragile budget.
According to their report, government would face the same challenges with higher energy costs that consumers do. Additionally, the fall in production for U.S. industry would lead to a loss of federal government tax revenues. Further increasing spending while decreasing revenues makes cap and trade a tough sell in the current economic climate.