News Releases

8.6.2009

Economist sees negatives of cap-and-trade

Aug 1 - McClatchy-Tribune Regional News - Mannix Porterfield The Register-Herald, Beckley, W.Va.

Imagine seeing your household purchasing power plunge by $1,870.

Factor in a monthly electricity bill that is now 22 percent or a natural gas charge that is up 16 percent.

Stop at a gas station for a fill-up: $5 a gallon, the new sign proclaims.

On top of that, some folks likely will find themselves out of work, especially in coal-dependent West Virginia, all in the name of curbing greenhouse emissions that some politicians view as a threat to the planet's temperatures.

West Virginia University economist Russell Sobel sees myriad negatives coming from the proposed cap-and-trade bill ardently pushed by President Obama, touching every consumer in the United States.

The idea is cap the amount of carbon dioxide allowed to escape into the air, but Sobel and other critics are swift to point out that industrialized nations across the seas aren't being held to the same standards.

That not only puts Americans at a distinct disadvantage, but minimizes the effect on the planet, if any, of trimming emissions in this nation.

"We're just going to basically see a lot fewer coal-fired power plants," Sobel said in an interview.

"It's going to be a lot more expensive to produce electricity with coal than it will be to grow nuclear or some other form."

A factory that burns coal will switch to natural gas or some other form, and consequently, the demand for coal -- still the bedrock of West Virginia's economy -- will become less in demand, he said.

"Suppose you're thinking about starting a power plant," he said.

"Let's consider your choices. You can either build a coal-fired power plant or a nuclear-fired power plant. You choose the one that's more profitable. All of a sudden the cost of using coal because of the CO2 permits you would have to buy, it's going to make the coal-fired power plant a less profitable option. You may switch to a nuclear one instead. Basically, it's going to be more expensive to use coal."

No one can know precisely just how much goods and services will go up, but up they are destined to go, Sobel said.

"If you look at the average house in West Virginia, your electricity bill is going to skyrocket," he said.

Overall, he said of cap-and-trade, "This would be pretty devastating for our state because we produce coal."

One estimate at his disposal shows the overall price tag on the American economy would be staggering -- some $4.8 trillion.

By 2029, he said, again citing another projection, manufacturing will have lost some 3 million jobs.

What makes such figures even more distressing to economists is that the impact of curtailing emissions in America will make only "a minor difference" across the plant.

Sobel pointed to the debate among scientists about global warming itself -- whether industry is the culprit, or whether it is naturally occurring in the cyclic nature of weather.

One of the professors in his office has on display a Time magazine cover from a few decades ago warning of a coming "ice age," back when the climate was headed in the direction of cool.

"Even if we were trying to cut emissions here, it has a very small impact on total emissions," Sobel said.

"It's going to have very little benefit under the most generous scenario. And then, on the other side, it's going to have a tremendous cost on the economy, on the cost of everything that uses energy -- electricity, gasoline. Manufacturing is going to be more expensive. It's going to result in a lot more cost and a lot of job losses in the economy. The thought of doing that in the current economy to me is almost unfathomable, that would you want to put this on the economy in the middle of what we're going through."

One Web source fears a 16 percent boost in natural gas, electricity bills that are an average 22 percent steeper and gas that rises 23 cents a gallon.

"Republicans tried to put an amendment in the bill that would suspend cap-and-trade if gas hits $5 a gallon, but the Democrats pulled it back," Sobel said. "I guess it's probably going to do it."

About half of the homes in America are juiced by coal-fired power plants. In West Virginia, the reliance is 98 percent.

Early on, the debate over emissions included an option for imposing a carbon tax on every unit of CO2, while the bill now in the Senate would impose caps with trade-able permits, Sobel said.

Normally, economists would shy from taxes and take the alternate approach of caps with the right to swap them with others, he said.

"The problem is, the quantity of permits they issue is completely politically, arbitrarily determined," Sobel said.

"There's nothing efficient about the number of permits out there. The issue is, is it worth all those costs on the economy, particularly that we're in the middle of this recession. If you look on the benefits side, even under the most generous assumptions you could make, this is going to make marginal, if any, difference in global CO2 emissions and greenhouse gas problems. Even if it has an effect, the cost is probably far greater than the benefits, particularly for states like West Virginia."

-- E-mail: mannix@register-herald.com