Investing in Cap and Trade

It may not have made as many waves as the Michael Jackson story, butlast week, after the House passed the cap-and-trade bill, the mediaresponse was overwhelming. Not that anyone should be surprised. This isa huge issue.

However, it seemed that much of the earliest coverage stirred up anawful lot of hostility and opposition. And it was everywhere. From themost conservative blogs to the most liberal social media sites – thosewho oppose any kind of effective climate change legislation were notpacing back and forth in the waiting room. They were hitting up everypossible media outlet to express their opinions and outrage.

Now I have no intention of opening up the global warming debatehere. Those who believe global warming is some kind of scam are notgoing to change the minds of those who believe there’s something to it.And vice-versa.

However, one thing that I’m finding increasingly frustrating is theamount of manipulated data that’s being disseminated all over theinternet…and mainstream media.

Let’s first take a look at the data that was debunked earlier in the year – but was used as a rallying cry on Fox & Friends last Friday.

You’ve likely heard it before — that cap-and-trade will costconsumers an extra $3,100 a year. This is the figure that a handful ofbureaucrats in D.C. came up with after massaging some data found in anMIT study.

John Reilly, one of the study’s authors told House Minority Leader,John Boehner that the MIT study had been misrepresented in pressreleases distributed by the National Republican CongressionalCommittee. Reilly stated that it was misleading and simplistic to onlylook at the impact on energy prices, as it didn’t account for theproposals that have been designed to offset the energy cost impacts onmiddle and lower income households.

Of course, it wasn’t just Boehner’s office that pumped out the pressreleases about the supposed high costs associated with cap-and-trade.

The Heritage Foundation chimed in with their analysis of the billwhich they claim adds little more than a massive energy tax in disguisethat promises job losses, income cuts and a sharp left turn toward biggovernment.

Their cost estimate is $1,500 a year.

On the other side of the coin, we have John Reilly’s estimate ofabout $800 a year. . .an EPA analysis which estimates a cost of between$98 and $140 a year. . .and a Congressional Budget Office estimate thatputs the total at $175 a year.

I suspect all of these numbers have already been run through theopposition’s spin mill, rejected thoroughly, and blasted back out onthe internet.

Either way, no matter how accurate or manipulated the data – the truth will only be realized in practice.

Listen: Certainly no one wants to spend more money for electricity.Especially during these rough economic times. And this is whatopponents of climate change legislation are banking on – telling usthat energy will cost more because it will cost more to produce. Butisn’t this really just an illusion – like the "cheap" energy we consumetoday?

I would argue that energy production would not cost more. The pricewe pay to the utilities for that energy, however, would. And there’s avery important difference between the two.  

What we’re really talking about here is attaching an environmentalcost to the production of electricity. But that cost has always beenthere. It’s just that you and I never see that cost on our bill.

Bottom line: There is a definite environmental cost associated withthe production and combustion of fossil fuels. And that cost is thedeterioration of natural capital (water, minerals, fish, trees, oil,soil, air, and living systems, including wetlands, estuaries, coralreefs and rainforests)

Now before you write this off as some kind of random environmental agenda, hear me out…

As explained in the book Natural Capitalism (which is an absolutemust-read for environmentalists, economists and business leaders),natural capital has never really been valued appropriately. Rather, ithas constantly been liquidated, thereby further enabling thedeterioration of ecosystem services that really represent the mostimportant type of capital – things like the regulation of atmosphereand climate, the cycling of nutrients and water, pollination, controlof pests and diseases, and the maintenance of biodiversity. While thevalue of these free, natural, and self-regulating services are worthtrillions annually, this value has never really been reflected onbalance sheets.

Instead, the costs associated with the loss of natural capital havelong been externalized onto the environment. e.g.) you, me and everysingle thing that lives around us.

And the truth is, we’re only talking about CO2 with thiscap-and-trade bill. As far as I’m concerned, there’s still the mercuryissues associated with coal, the waste issues associated with nuclear,and the security issues associated with our reliance on oil. Thesearen’t included in the bill. But throw those on your tab, and you’llsee an even higher cost per kWh.

The price we pay for energy today does not reflect the true cost ofproducing that energy. An effective climate change bill could at leastbegin to enable a more accurate cost structure.

I know, I know. No one wants to shell out a penny more for anything.And I’m no different. But if we truly believe in a free market system,than we should not resist a fair and accurate cost analysis of energy.Because the truth is, it’s never really existed.

Now understand, I’m not saying cap-and-trade is the answer. To behonest, this thing is so politically-motivated, it’s hard to figure outthe most effective, and honest solution. Seems to me, the best way todo this is simply to charge consumers the REAL price. I’mconfident that if no subsidies existed (direct or indirect) for anykind of power generation (fossil fuel or renewable), and ALL natural capital costs were figured into the equation – the market would dictate the rapid expansion of renewable energy and smart grid development, which would thereby enable a decrease in fossil fuel consumption, and ultimately a decrease in CO2 emissions.

Jeff

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