May 30, 2008

The New Carbon Tax

You can call it a investment, call it a lease, call it an auction, but whatever you call it companies that produce CO2 emmisions are in for substatial increases in the cost of doing business. Congressman Edward Markey (D. Mass) has announced a plan to penalize those companies that do not meet his future government mandates for greenhouse gasses.

Markey prefers to portray his plan an investment and as he describes, “The bill is called the Investing in Climate Action and Protection Act, or iCAP for short, the small “i” a tip of the cap to the technological potential of clean energy. The bill also proffers a new paradigm in global warming legislation: the Cap-and-Invest system. The bill caps pollution at 85 percent below 2005 levels by 2050. It then uses an auction system that sets a price on carbon, and allows companies to compete for reductions, or buy or trade credits within the system.”

In a roll out of his bill at the Center for American Progress Markey noted that his bill is fashioned after the European plan but where they went wrong is they gave away carbon credits to the various industries FOR FREE. We won’t be that foolish. Instead we are going to auction carbon credits to industries to the tune of 8 Trillion Dollars.

It takes a little Orwellian imagination to call a tax an “Investment” but that is essentially what he has done as the Economic Policy Institute explains; “For example, a lease for 10 tons of carbon dioxide could be sold at auction to an electricity producer. The lease would entitle the purchaser to release 10 tons of carbon over the life of the lease (say five years), but it would also require, for these emissions, a fixed per-ton payment, which would be set in advance by the terms of the lease. Businesses would thus have an upfront cost to obtain the permit at auction (though less than in a cap-and-trade regime), and then they would be responsible for the annual payment for polluting. This payment would act like a carbon tax, increasing incentives to reduce emissions while adding predictability to the market and costs.”

Economically speaking, anytime the government takes money out of the system there is going to be an equal and opposite reaction. In this case the cost of energy and most other products is going to have to go up or businesses that are able are going to go overseas. But don’t fear. To make the plan palatable to the masses Markey is going to throw you a bone. He states “More than half of the funds from the bill goes directly back to low-and middle-income American families to offset any increases in energy costs from the transition of the economy to low- or zero-carbon energy.” As Soapy Smith used to say, “We steal from the other guy and pass the savings on to you.”

It must be noted that former Clinton White House Chief of Staff John Podesta testified before Markey's congressional commitee, along with former Clinton advisor Ian Bowles, and Markey choose to make the announcement at Podesta's Center for American Progress.

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