The analysis above also assumes that a full compliance is made by deploying wind, nuclear and the like in a timely fashion. This is a highly optimistic plan. The above Figure shows several interesting results from the Administrations proposal. They are:
1. In constant dollars the tax per person goes from $310 to $1,650 per year. To get the number per household you multiply by 2.5 yielding $775 to $4125. This is just for electricity and does not include any additional costs for industrial pass through and the like.
2. This fee take $95 billion and growing to $600 billing per year out of the economy and places it in the Government coffers! This removes massive amounts of capital from productive sources and places them in the hands of Congress and the Executive!
In an early 2008 blog comment from the then CBO head Orszag, he wrote on the alternative CO2 control options:
"In this study, CBO examined a variety of incentive-based policies for reducing CO2 emissions, including a tax and a cap-and-trade system:
1. A tax would set an upper limit on the cost of emission reductions—firms would undertake reductions that cost less than the tax—but would leave the amount of emissions uncertain.
2. An inflexible cap-and-trade program would set an upper limit on the amount of emissions but would leave the cost of reducing emissions uncertain.
3. A flexible cap-and-trade program would maintain the structure of a cap-and-trade program, but would include features designed to limit the cost of meeting the cap. Specifically, a cap-and-trade program could include one or more of the following:
i. A price ceiling (often referred to as a safety-valve) and/or a price floor;
ii. Provisions that permit firms to “bank” unused allowances in one year for use in a future year
and/or “borrow” future allowances for use in an earlier year;
iii. Provisions to make the cap less stringent if the price of allowances rises beyond an agreed upon amount. A “circuit breaker” would directly modify the cap. Alternatively, the government could indirectly modify the cap by changing the terms under which firms could use borrowed allowances."
He then continues:
"The study finds that:
A tax could achieve a long-term emission reduction target at a much smaller economic cost than an inflexible cap. Provided that the tax was set equal to the expected benefit of reducing a ton of CO2, a tax could thus result in substantially greater net benefits (benefits minus costs) than a comparable cap-and-trade program. The advantage of a tax stems from the long-term nature of climate change (which depends on the build-up of emissions over many decades, but is not sensitive to the amount of emissions in any given year) and the uncertain and variable nature of the cost of reducing emissions (which will vary from year to year based on the weather, conditions in energy markets, and the availability of new technologies).
An inflexible cap-and-trade program would provide more certainty about annual emissions than would a tax; however, that certainty would come at a cost: The cap would require too many reductions when the cost of achieving them was high and would mandate too few reductions when the cost was low.
Flexible cap-and-trade programs could achieve some, but not all, of the efficiency improving/cost minimizing advantages of a tax:
Out of the flexible cap designs that CBO considered, a cap-and-trade program that included both a safety valve and either a price floor or banking provisions could offer the greatest potential to minimize the cost of meeting a given long-term target.
Including a circuit breaker, or altering the extent to which firms could use borrowed allowances, could help prevent the price of allowances from going higher than policymakers wanted. Either approach, however, would be less direct, and less effective than including a safety valve.
Either a tax or a cap-and-trade program could be relatively easy to implement. Some flexible design features, such as banking, borrowing or a safety valve, would be straightforward to implement. In contrast, price volatility in the allowance market could make it difficult for the government to know when to implement a circuit breaker (or to change the terms associated with borrowing allowances). Minimizing the cost of reaching a global emissions target would entail undertaking the lowest-cost emission reductions regardless of where in the world they were located. If coordinated among emitting countries, a tax would help minimize the cost of achieving any given target. Linking the cap-and-trade programs of various countries could help minimize global costs, but could create some significant concerns:
- Countries would give up sovereignty over the price of allowances traded in their programs.
- Poor monitoring or enforcement in any one country could undermine the integrity of the
- allowances traded throughout the whole system.
- Flexible design features, such as a safety valve, banking, or borrowing, would become
- available to all regulated entities in the linked system.
- Major emitting countries could help minimize global cost of reducing emissions by establishing
- national cap-and-trade programs that each included a safety valve set at roughly the same level."
"Begin a Comprehensive Approach to Transform Our Energy Supply and Slow Global Warming.
The Administration is developing a comprehensive energy and climate change plan to invest in clean energy, end our addiction to oil, address the global climate crisis, and create new American jobs that cannot be outsourced. After enactment of the Budget, the Administration will work expeditiously with key stakeholders and the Congress to develop an economy-wide emissions reduction program to reduce greenhouse gas emissions approximately 14 percent below 2005 levels by 2020, and approximately 83 percent below 2005 levels by 2050. This program will be implemented through a cap-and-trade system, a policy approach that dramatically reduced acid rain at much lower costs than the traditional government regulations and mandates of the past. Through a 100 percent auction to ensure that the biggest polluters do not enjoy windfall profits, this program will fund vital investments in a clean energy future totaling $150 billion over 10 years, starting in Fy 2012. The balance of the auction revenues will be returned to the people, especially vulnerable families, communities, and businesses to help the transition to a clean energy economy."
Now this implies the following:
1. The Government will auction off rights to generate CO2 emissions to the highest bidder. This will be akin to the FCC spectrum auctions. he have had major problems and have been dominated by the largest carriers. This means that the proposed national 100% auction will generate massive industry consolidation and massive monopolization of the power industry as well as of industrial production. The Administration continually fails to understand the unintended consequences which will flow from their actions.
2. The Government will maximize its returns on ALL CO2 emissions. In our model the intent was to cap emissions. In the Government model it is to cap emissions as well as collecting a massive amount of tax by having a monopoly on the auction process.
3. Government auctions are inefficient and time consuming and tend to either maximize prices, thus becoming a highly regressive tax, or result in people just walking away. The FCC spectrum auctions give many examples. Fraud also has been rampant in these auctions.
4. The tax collected in this process will just be handed down to the consumer and business. This is a massive tax and will draw capital from the US economy and destroy massive amount of entrepreneurial efforts. It appears that the current Administration is bent on destroying the American entrepreneur at all costs. They seem to believe that they and they alone have the insight to "invest in America" and "to make the right choices" in what is to be done, the market be damned. The more one looks at this cap and trade scheme the more Americans should be terrified that their future shall disappear in the smoke that contains less CO2.
5. The CBO just a year ago supported a tax plan if any were required. Yet the Administration's proposal is a 100% Auction hard cap plan. This then allows the Administration to effectively take over the power companies, drive out the industrial base and destroy any creativity. Frankly this goes from Socialism to, well, I think we may have seen this before.
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