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August 7, 2009 Tim McMahon, Editor --
Cap and Trade is the latest in the War on "Global
Warming" but for all the hoopla what is really
behind it all? Follow the money trail...
The Carbon Cap:
The Newest Form of Taxation
By Doug Hornig, Editor,
Casey Research
It’s possible that no concept
in history has ever come so far, so fast, and with
so little substance behind it, as “global warming.”
Or, to be precise, anthropogenic global warming
(AGW) – the kind caused by us puny humans rather
than by that fireball that keeps the planet
habitable.
We’re extraordinarily lucky.
If present thinking is correct, the first
single-celled living organisms may have appeared as
much as 3½ billion years ago, and it would appear
that once life arrived, it never went away. That’s a
very long time for conditions to have remained
favorable enough to keep the chain from breaking.
As the eons unspooled, Earth’s
climate varied, sometimes wildly. It has been much
hotter than it is today, and much colder. (One
current theory holds that the average surface
temperature has regularly oscillated between 120°
and -50°F.) Nearly all of the changes have been due
to variations, some of them cyclical, in the amount
of solar radiation reaching the surface of the
planet. Through it all, life endured, because of the
existence of carbon.
Now, rather suddenly, carbon is
the designated boogey man. Individually and
collectively, we are told, we must work on reducing
our “carbon footprint,” or else something awful is
going to happen. The headlines are terrifying: we’ll
have hellacious droughts, monster hurricanes, and
entire cities disappearing beneath the waves.
Well, perhaps. In a climatic
feedback system as complex as Earth’s, anything is
possible. More likely, though, is that we’ll see
none of the above. Or at least not because of
anything humans do or fail to do.
The simple (yes, inconvenient)
truth is that scientists don’t even know whether the
planet is warming at all, let alone if AGW
has any role in causing it. The data are
inconclusive at best. Most of those dire predictions
you’ve read are based upon computer modeling, and
anyone who watches the nightly weather forecast
knows how infallible that tends to be.
Yet the truth has not
prevented the AGW theory from being presented to the
public as fact. Its proponents have so captured the
media that Al Gore’s Nobel Prize is a huge story,
while the Manhattan Declaration of 2008 gets nary a
mention in the press. The latter, endorsed by
hundreds of prominent citizens, including two
hundred climate scientists, concluded that “current
plans to restrict anthropogenic CO2
emissions are a dangerous misallocation of
intellectual capital and resources that should be
dedicated to solving humanity’s real and serious
problems.”
Sadly, that misallocation is
about to get a whole lot bigger. If the Obama
administration has its way – and it is expected to,
since there’s no meaningful opposition – carbon caps
will soon be coming to every American town.
If you’re unfamiliar with the
concept of a carbon cap, it’s simple. It’s a tax.
The president wants to reduce per-capita U.S. carbon
emissions to 14% below 2005 levels by 2020, and 83%
by 2050. And he’s promoting this as a good idea by
suggesting that it will pour $646 billion into
federal coffers between 2012 and 2019, through
government auctions of the rights to emit greenhouse
gases. Those rights would be sold to energy
companies, manufacturers, utilities, or anyone else
who “pollutes” the air with carbon dioxide. And they
could be traded.
Leave aside the question of
whether reducing human carbon emissions is truly a
valid goal; and whether we need another huge tax;
and whether the government will do anything
constructive with an infusion of our money, to the
tune of nearly two-thirds of a trillion dollars.
Instead, just consider the consequences.
The cost of everything will go
up, as the affected businesses compensate for their
lost revenue. If carbon credits are auctioned at the
lower end of the projected range (between $13 and
$20 a ton), estimates are that the average price of
gasoline will jump by 12 cents a gallon and the
average electricity bill by 7%.
Worse, though, is that the
pain will be unevenly distributed. As the Detroit
News editorialized, the cap-and-trade plan “is a
giant dagger aimed at the nation’s heartland --
particularly Michigan. It is a multi-billion-dollar
tax hike on everything that Michigan does.”
That is, it penalizes states
and regions with large manufacturing bases and coal
dependence for electricity, and rewards places with
larger populations but light industry and cleaner
power plants. As Michael Morris, CEO of coal-heavy
American Electric Power, put it: “It is a clear
transfer of the middle part of the country’s wealth
to the two coasts.” Small wonder that politicians
from California and New England are such
enthusiastic supporters.
For what to expect here, we
can look to Europe, where cap-and-trade is firmly
established. While it has worked, in the sense of
lowering carbon emissions (though not by as much as
anticipated), its effects have been stifling. For
example, the Washington Post cited “the Dutch
silicon carbide maker that calls itself the greenest
such plant in the world, but now can't afford to run
full-time; the French cement workers who fear
they're going to lose jobs to Morocco, which doesn't
have to meet the European guidelines; and the German
homeowners who pay 25 percent more for electricity
than they did before – even as their utility
companies earn record profits.”
This is what’s coming to your
town, if Congress capitulates to the White House.
The bill that will bring us cap-and-trade recently
squeaked through the House with just a single vote
to spare. It faces an uncertain future in the
Senate, where opposition is stiff. Modifications
surely will be made. But with Al Franken having
cemented the Democratic super-majority, it’s a lock
to pass in some form or other.
Ever-savvy, the market isn’t
waiting. Although no cap is yet in place, carbon
credits have already arrived. There’s even a place
to trade them, the Chicago Climate Exchange (CCX),
founded in 2003. And companies are busily buying and
selling in anticipation.
How does it work? CCX’s
website explains: “CCX emitting Members make a
voluntary but legally binding commitment to meet
annual GHG [greenhouse gas] emission reduction
targets. Those who reduce below the targets have
surplus allowances to sell or bank; those who emit
above the targets comply by purchasing CCX Carbon
Financial Instrument® (CFI®) contracts.”
In other words, some outfits
are stocking up on purchased credits, against the
day when they’ll be required by law. Others are
speculating that the value of those credits will go
up once the federal cap is in place. And some are
making a lot of money simply by selling carbon
reductions they’ve already made.
Among the players are expected
names from the heavy industry and utilities sectors:
DuPont, Ford, Reliant, American Electric Power,
Potash Corp., Waste Management, and so on. But it’s
a very long list, and on it are tech companies like
IBM and Intel; retailers like Safeway; Miami-Dade
County, Florida and Sacramento County, California;
the University of Idaho and half a dozen other
schools; even the Embassy of Denmark.
There’s no secret key to why
so many want a piece of this action. It’s going to
be a very, very big business. If European standards
are applied to the U.S., we’re talking about a
quarter-trillion dollars of credit trading a year.
Investors – if they’re well
heeled enough and willing to assume a lot of risk --
can participate directly in carbon credit trading.
Or they can buy stock in the parent of CCX, which is
publicly traded in London.
But there are other ways to
profit from this unstoppable force.
For example, by investing in
select junior exploration companies focused on
alternative energies, oil, or uranium. But in these
volatile times, it is vital to not only invest in
the right companies but to use the right investment
strategies. Like the 20-60-20 rule or
the Casey Free Ride Formula.
Find out more, get the FREE
special report
Profiting in a New Era.
Applying these tactics can make the difference
between losing your shirt or winning big in the
coming Cap and Trade blitz.
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