July 30, 2009
By Nicolas Loris
The current cap-and-trade debate is generating a lot of noise in
the United States. Much of that noise is coming from the halls of
Congress, where phone lines are ringing off the hook from citizens
expressing their support, but mostly expressing their disapproval,
of the U.S. Clean Energy and Security Act passed in the House of
Representatives on June 26. And buried in the 1,427-page bill are
protectionist carbon tariff provisions that have government
officials from across the globe making noise, too--and rightly
The idea behind cap and trade is to reduce carbon dioxide
emissions by putting a price on the right to emit carbon and other
greenhouse gases on businesses. Since 85 percent of America's
energy needs come from carbon-emitting fossil fuels, cap and trade
would be massive tax on energy consumption if enacted. How high a
tax? The Heritage Foundation's Center for Data Analysis estimates
the energy tax to be $3,000 per family a year.
Electricity bills, gasoline prices and home heating bills would,
as President Obama put it, "necessarily skyrocket." But the direct
tax on household energy use is just the beginning, because just
about everything we produce uses energy. The energy tax also hits
businesses, and the higher production costs ripple through the
If companies in the United States don't move overseas to make
efficient use of cheaper labor and capital, they will be forced to
pass those costs onto the consumers by raising sticker prices. And
all of this economic pain is for virtually no environmental benefit
as climatologists project this bill would only change global
temperatures by two 10ths of a degree Celsius by century's end.
Artificially raising the price on goods produced in the United
States places those firms at a competitive disadvantage, meaning
imports suddenly become cheaper. Some members of Congress and
Secretary of Energy Steven Chu suggest a carbon tariff would "level
the playing field."
As if the economic perils of cap and trade weren't bad enough,
adding a tariff to carbon-intense imports will make them worse--not
only for the United States, by making goods we buy from other
countries more expensive, but also for developing countries relying
on tradeto better their own economies.
Developing countries heavily depend on free tradeto prosper.
Countries which hold a comparative advantage in producing certain
goods know exports are critical for their economic growth, just
like they are in the United States. George Mason University
economist Russ Roberts says it bluntly, "We export so we can have
money to buy the stuff that's hard for us to make--or at least hard
for us to make as cheaply. Self-sufficiency is the road to
A carbon tariff would severely hinder free trade. Protectionism
often begets more protectionism. Countries already berating the
U.S. cap-and-trade bill because they view this as unfair could very
well respond by implementing tariffs of their own in retaliation.
Zhang Haibin, a professor of environmental politics at Peking
University and an adviser to the Ministry of Commerce on tradeand
climate change policies, warned the U.S. cap-and-trade bill "could
spark big tradedisputes, a tradewar even." Furthermore, trying to
measure the carbon intensity of goods produced by different
countries to create some sort of one-size-fits-all balancing act
will be a bureaucratic nightmare and highly subjective.
According to the U.S. Census.gov, the United States imported $24
billion worth of goods from China in May 2009 alone. The
specialization of production makes it cheaper for the United States
to import certain goods from other parts of the world while freeing
up resources to produce other goods and services at home.
We are a much wealthier nation because of China and every other
country with whom we trade. Disturbing that important reliance with
a cap-and-trade policy that will raise costs on consumers and
change the global temperature by an amount too small to even notice
is almost laughable until you realize how downright frightening it
It's that lack of environmental benefit, along with the high
costs, that makes other countries unwilling to implement
carbon-reduction schemes. Other countries' governments don't find
it in their interests, or for that matter necessary, to pursue a
carbon-capping policy. China's emissions are rising six times
faster than in the United States, but that's not necessarily a bad
thing. It's a sign of development and a booming economy. The same
can be said for India and other developing nations.
The common battle cry among advocates of cap and trade is that
once the United States paves the way for a carbon-reduction plan,
other countries will follow suit. Yet, in a case of international
cooperation, India, China and the rest of the developing world
would likely have to revert to emission output levels that are pure
fantasy. On a per-capita basis, China would backtrack to about one
10th of what the United States emitted in 2000. India and most of
the developing world would have to drop to even lower levels. This
is a de-developing strategy which no country will adopt.
Worse, carbon capping actually punishes the developing world for
using cleaner technology. The developing world is doing just that:
developing. For that reason, the technologies they use and the
infrastructure they build are newer, cleaner and more efficient.
Penalizing nations for developing, with tariffs or by forcing them
into global warming treaties, is morally wrong. Instead, Senior
tradeAnalyst Daniella Markheim of The Heritage Foundation
suggests, "policymakers should maintain the integrity and freedom
of global markets as a means to transfer clean technologies, keep
international investment flowing, and promote economic growth and
prosperity in the United States and around the world."
The upper house of Congress, the U.S. Senate, will begin working
on a bill in the early fall but has already commenced hearings to
discuss the costs and benefits of cap and trade. Energy is the
lifeblood of our economy, but free tradeis one of the fundamental
aspects of prosperity, not only in the United States but worldwide.
Instead of leveling the playing field, we'll be leveling economies
by tearing down their growth potential.
Loris is a Researcher Assistant in the Thomas A. Roe Institute
for Economic Policy Studies at The Heritage Foundation.
First appeared in The Beijing Review
The current cap-and-trade debate is generating a lot of noise in the United States. Much of that noise is coming from the halls of Congress, where phone lines are ringing off the hook from citizens expressing their support, but mostly expressing their disapproval, of the U.S. Clean Energy and Security Act passed in the House of Representatives on June 26.
Herbert and Joyce Morgan Fellow
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