Cap and Trade Effects

One of the stated goals of the cap and trade legislation is to reduce our dependence on fuel imports. It may have the opposite effect:

June 26 (Bloomberg) — America’s biggest oil companies will probably cope with U.S. carbon legislation by closing fuel plants, cutting capital spending and increasing imports.

Under the Waxman-Markey climate bill that may be voted on today by the U.S. House, refiners would have to buy allowances for carbon dioxide spewed from their plants and from vehicles when motorists burn their fuel. Imports would need permits only for the latter, which ConocoPhillips Chief Executive Officer Jim Mulva said would create a competitive imbalance.

“It will lead to the opportunity for foreign sources to bring in transportation fuels at a lower cost, which will have an adverse impact to our industry, potential shutdown of refineries and investment and, ultimately, employment,” Mulva said in a June 16 interview in Detroit. Houston-based ConocoPhillips has the second-largest U.S. refining capacity.

The same amount of gasoline that would have $1 in carbon costs imposed if it were domestic would have 10 cents less added if it were imported, according to energy consulting firm Wood Mackenzie in Houston. Contrary to President Barack Obama’s goal of reducing dependence on overseas energy suppliers, the bill would incent U.S. refiners to import more fuel, said Clayton Mahaffey, an analyst at RedChip Cos. in Maitland, Florida.

I don’t believe that cap and trade has a prayer in the Senate anyway, but if it is passed in its current form, it will not reduce carbon emissions and it will not reduce our dependence on imported oil and gas. If it doesn’t accomplish its stated purposes, why in the world would we enact it?

The cap and trade bill that passed the House also has carbon tariffs on goods produced in countries that don’t have a similar phobia about cheap energy. Paul Krugman thinks that’s a find idea, but he also thinks that anyone who opposes cap and trade is guilty of treason. I don’t know the true cost of emitting carbon and neither does Paul Krugman, but I do know that regardless of the reason they are imposed, tariffs are not a good idea. Smoot and Hawley didn’t think their tariffs would cause any harm either and that didn’t work out too well (see, Depression, Great).

If a carbon tax were enacted honestly, I might – and I emphasize “might” – be able to support it for foreign policy reasons. No one but politicians and lobbyists can support the bill that was passed by the House last week.

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