Kenneth P. Green: Cap-and-trade won’t work as greenhouse gas remedy

This is an excerpt from testimony on Nov. 10 before the Senate Finance Committee by Kenneth P. Green, a scholar with the American Enterprise Institute, a conservative think tank in Washington, D.C.

I have spent the past 15 years analyzing public policy at think tanks in both the United States and Canada, with an emphasis on air pollution, climate change and energy policy.

Specifically, I have studied market-based mechanisms for dealing with pollution problems of all sorts and have studied cap-and-trade as it has made its appearance in conventional air pollution control and now in greenhouse gas control.

As increased energy costs raise the cost of all U.S. goods and services, consumption will decline, causing still more job losses.

What I can tell you, based on my research, is this: Cap-and-trade is an inappropriate policy tool for the control of greenhouse gases that will cause significant economic harm and will kill and export jobs, for little or no environmental benefit.

Current legislation applies an emission-trading model to an unsuitable pollutant. For emission trading to work, you need readily available technology to capture emissions, or alternative sources of energy that let some people generate surplus emission reductions so they can sell them to others.

We had that with SO2 (sulfur dioxide, regulated under a cap-and-trade program since the 1990s); we don’t have that with CO2. With CO2, as the EPA acknowledges, we’re dependent on offsets to control costs and offsets are notoriously slippery. Even the economists who first developed the theory and practice of cap-and-trade have said it is not a suitable mechanism for greenhouse gas control. It hasn’t worked in Europe, and it won’t work here.

By design, and despite provisions that try to hide this from the public, the carbon-control bills now circulating would increase energy prices — slowing economic growth, killing jobs and reducing competitiveness.

And this is a one-way street, since cap-and-trade doesn’t only cap emissions, it caps economic growth. When GDP goes up, energy consumption does also, and so do carbon permit prices, choking off continued growth. The tighter the emission cap, the tighter the economic straightjacket.

As energy prices rise and American companies find themselves less competitive, businesses and jobs will flow to countries without greenhouse gas controls, and without stringent environmental controls of any kind, potentially allowing emissions to increase. The remedy to this, border tax adjustment, is only likely to cause a trade war that would further damage the U.S. economy.

Legislation now before Congress would cause regional winners and losers, and would unjustly redistribute and export wealth from industrial, coal-powered state industries to industries in states with greater hydro, nuclear or natural gas resources. It would send U.S. taxpayer dollars abroad to countries that are our economic competitors, and sometimes geopolitical adversaries.

Cap-and-trade would create a new, poorly understood financial instrument that could be used to leverage debt, potentially creating a massive carbon bubble that would burst once it became clear we couldn’t afford to maintain the scheme.

Finally, cap-and-trade — and all carbon control, for that matter — would put a bounty on ecosystem: As carbon control favors biofuels, more ecosystem would be planted over, and farmland would be used to grow fuel instead of food.

A recent article in the journal Science observes that attempting to limit CO2 concentrations to 450 ppm (the currently stated goal of carbon controls) would cause bioenergy crops to expand to displace virtually all of the world’s natural forests and savannahs by 2065 and actually increase global greenhouse gas emissions.

As for the claim that the green-energy provisions of current climate legislation would create green jobs that couldn’t be exported, this is simply nonsense. As I testified before another Senate committee, governments do not create jobs; they just move them around, inevitably resulting in a net loss of jobs.

Economists have known this for more than 150 years. Europe has seen much of its green industry exported, and the United States is already seeing solar cell and windmill production moving to China.

The only thing worse than no energy policy is bad energy policy, and that is what cap-and-trade and approaches like it represent: Bad energy policy wrapped up in deceptive terminology that tried to hide the true nature of the legislation.

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