This week, the United States Senate will begin debate on so-called "cap-and-trade" legislation.  Supported at least in concept by all three candidates who have a realistic shot at becoming President, the legislation would basically set a national limit on CO2 emissions (a "cap") that would decrease over time.  Companies would bid on "credits" to emit CO2, then could trade these credits amongst themselves -- businesses that emit less CO2 could sell their permits to companies that emit more.

Businesses that tend to emit more CO2 are involved in energy production:  electricity generated from burning coal or natural gas, for example, or refineries and chemical plants.  Proponents of the bill claim that creating a cap-and-trade system is a "free market" approach to reducing so-called "greenhouse gas", thus fulfilling our "obligation" to "do something" about global warming.  The claim is fraudulent on several points.

First of all, a "free market" doesn't require legislation from the government to enact.  The attempt to portray cap-and-trade as a "free market" approach is a language juxtaposition of Orwellian proportions.  The government is mandating the terms of the trade, setting a national limit on the supposed "commerce" of the deal.  Rather than creating a "free market" -- one based on voluntary exchange between consenting individuals -- the government is imposing a situation where the exchange is legislated and does not benefit the market as a whole.  Rather than a "free market" approach, cap-and-trade is statism at the extreme.

But looking further at the impacts of a cap-and-trade system yields even more not to like.  In the European Union, signatories of the famous Kyoto Protocol have been under the yolk of cap-and-trade for several years now.  As reported by Bloomberg:

"Gasoline rose 30 percent in the U.S. this year to a record $3.962 a gallon on May 29, according to AAA, the nation's biggest motoring club. In Germany, a gallon costs $8.33, more than double 2002 levels. The highest is $9.69 in Norway...  British gasoline costs $4.64 a gallon more than in the U.S., compared with an average difference of $3.85 over the past five years ..."

As Bloomberg further reports, the cost difference is at least partly attributable to taxation: 

"Americans paid about 12 percent in tax on every gallon of gasoline purchased in April, according to the Energy Department. More than 50 percent of the retail gasoline price in the U.K. goes to the government... includ[ing] fuel duty of 39 percent and value- added-tax of 17.5 percent..."

Keeping in mind that "[t]he cost of crude oil determines about 73 percent of the pump price of gasoline", and, as reported in previous posts, oil company profits typically run 8-10% of sales, and it is easy to see that cap-and-trade tax increases will have a significant impact on the price of gasoline and other petroleum and petrochemical products, e.g., plastics.  Thus, the ripple through the market will be felt directly, in terms of higher costs for electricity and gasoline, and indirectly, in the form of higher prices for food (due to fertilizer and shipping cost increases) and construction (due to higher costs for plastics, whose feedstock components are typically fossil fuel-related).

Economists have varied estimates about the total impact of cap-and-trade on the economy, and of course the ultimate impact is impossible to predict precisely, due to the change in behavior of investors, producers, and consumers.  The Congressional Budget Office estimates that the current cap-and-trade bill under consideration in the US Senate would result in a tax increase of $1.2 trillion over the next 7 years.  That's $1.2 trillion that individuals won't be spending on education for themselves or their children, or retirement investing, or on a new house, boat, or car, but rather sending to the government.  Of course, proponents of cap-and-trade claim this money will be "invested" in so-called "green" technologies.  Translation:  money will be confiscated from individuals and delivered to businesses favored by the government.  It is a wealth transfer of historic proportions, yet another corporate welfare program for the wealthy.

But setting aside the economic, taxation, and government expansion aspects of the cap-and-trade bill for a second.  Shouldn't we be "doing something" about global warming?  As proponents of government expansion to deal with the problem suggest, isn't it a necessity to "act now"?  If so, there's a pretty significant question that has not, to my knowledge, been answered anywhere by anyone discussing any cap-and-trade program:  How Much Will This Program Lower Global Warming?  Is it by 10%?  20%?  30%?  1%?  The brazenness of the idea is amazing:  we are expected to "invest" in programs in which the private sector doesn't see a return (else private capital would be flowing into these programs without government intervention), rather than voluntarily "investing" our money will be taken from us without our consent, and there is not one single person who can tell us what the ultimate benefit will be!  There is no promised, defined, outlined return on our "investment" -- only numbers telling us what the decrease in CO2 emissions will be ... that is, if we are actually able to meet the cap targets (many countries in Europe are finding it difficult to do so).

A dramatic increase in energy costs for an undefined benefit:  that's the deal we're getting with cap-and-trade.  If experience is any guide, should we enact this legislation, within a few short years we'll be looking back on $4 with nostalgic reminiscing -- a fond memory of a cost we found unimaginable only 2 years ago.