Wednesday, June 23, 2010

EPA confirms new cap-and-trade bill inadequate

EPA Analysis Confirms Inadequacy of New Cap and Trade Bill

When reporting EPA’s economic analysis of  Sens. Kerry and Lieberman’s “American Power Act” legislation last week, most outlets focused on its questionable projections of relatively low costs to US households. Yet, the most newsworthy aspect of the agency’s report was buried in the middle of the analysis on pages 25 and 31.
Federal analysts found the Senate cap and trade bill will not only fail to cut petroleum use in the next 20 years, but will actually increase our reliance up to 2030. Then, surprisingly, after 2030 the analysis expects that America will not be able to decrease emissions enough to stay under the proposed cap. This deficiency will result in higher costs for emissions permits and higher energy prices for American households – a fact upon which the bill’s proponents have been noticeably silent despite its potentially huge implications for the overall analysis of the cost of the program – not to mention its efficiency.
Volatility inherent in commodity markets is just one of the fundamental flaws in the kind of cap and trade systemalready in place in Europe. By failing to put a steady price on carbon, an emissions trading scheme lacks the ability to give businesses the needed incentives to switch to clean energy. A failure to make the transition to a clean economy represents a serious problem for both the climate and Washington’s clean energy agenda.
With its Emissions Trading System (ETS) in place since 2005,, Europe has experienced firsthand its inability tosignificantly reduce emissions, send a steady market signal, and avoid distorting market influences. Manipulation, cheating, and outright fraud run rampant in the European system as market specialist use insiders’ knowledge and regulators’ ignorance to their advantage to skim profits, thereby increasing national energy prices. Risky derivatives markets have also arisen in the EU program, fueling risk taking on a scale larger than the US housing market, which recently ignited a global recession when its bubble burst. A recent study by Harvard professor Richard Cooper analyzes the various phases of implementing the ETS, highlighting the layers of unintended consequences such systems place on national economies.
Hopefully, Americans can heed the warnings of the European system while grasping EPA’s findings, which indicate a similar future here at home. From the lessons learned, we must select a more suitable climate policy. This policy would need to include a steady price on carbon to send the right market signals, while having minimal costs to energy consumers in order to remain politically viable. Such a policy option exists, and it is about time we start discussing it in order to responsibly address America’s energy future.

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