Obama's Carbon Cap And Trade Folly

In Europe, they've had a "Carbon Cap and Trade" system in place for the last four years in order to try and lower carbon emissions. Rather than have each individual government that makes up the European Union mandate carbon output levels, the "Cap and Trade" system attempts to achieve carbon reductions through a sort of a "Carrot and Stick" system.

In its purest form, "Cap and Trade" dictates that a government set a ceiling or limit for all carbon dioxide producing activities within its borders. For example, a coal-fired power plant would be one such a carbon dioxide producing activity. Another might be a cement factory. Another, being a steel smelter or foundry, and so on.

Typically, these activities receive a mandate from the government that their carbon output is being "capped" at some predetermined level. Usually that level is at their current level of carbon dioxide output or at their seasonal highs. If they exceed that level, they then have three options: (1) buy carbon credits through a "Trade" system in the open market to offset their excess carbon output; or, (2) pay a fine; or, (3) be completely shutdown by the government. This is the "stick" portion of "Cap and Trade".

Additionally, the "Cap and Trade System" will specify new, lower cap levels as time goes on in order to keep forcing down the overall production of CO2.

As I had mentioned before, if a company exceeds its carbon output, it can "buy" offsetting carbon credits in the open market place. Credits are created by those activities or companies that fall short of their "caps" buy replacing their un-green output with things like solar power. This is the "carrot" portion of the "Cap and Trade" system. In theory, the punitive impact of having to buy credits and the financial benefit of selling of these credits should be enough of an incentive for companies to go green. In theory!

Typically, "Cap and Trade" will cause energy prices to rise. That's because energy producers, such as those with coal-fired and gas-fired power plants, will be forced to ignore any excess capacity they might have in their current power plant operations. To use any of that excess capacity, as its customer base grows or as demand increases, they will be forced to buy credits or face fines. The cost of credits or fines is at a premium to the normally small incremental costs that would have been incurred in simply using up the excess capacity. As usual, you and I will pay that cost; not the company or utility.

Furthermore, "Cap and Trade" automatically puts those energy producers who are unfortunate enough to be based in either solar deficient or wind deficient areas of the country, at a financial disadvantage in meeting their "caps." For these power producers, installing solar or wind means that they do so at very high inefficiency rates and, as a consequence, at very high costs. Certainly, the operational efficiently of a square yard of solar panels is going to be greater in Arizona where there is 99% daily sunshine rate than it would be if installed in, say, Seattle that has an average 227 days of rain and clouds per year.

To counteract the above, the government has no other choice but to start building exclusions into the "Cap and Trade" laws. But, just like our federal income tax system and all the ins and outs that have been built in, in order to favor certain voting blocks, you can expect the lawmakers in Congress to play with "Cap and Trade" to buy votes from their constituents. This can only result in a complete dilution of the effectiveness of "Cap and Trade."

Lastly, the belief that wind or solar will completely replace coal and gas is just folly. Anyone who boats for a living or for recreation knows that the winds pick up in the late morning, as the sun comes up and, then, usually subside as dusk nears. That's because all the wind production in this world is as a result of the sun's uneven cooling and heating of the earth. Further, solar panels work great on sunny days and when the sun is at its apex. But in the evening hours, when most of America is watching prime time television and has the lights on, solar and wind are highly inefficient and naturally unreliable. Because of these inconsistencies, the entire network of green energy production must be overbuilt to accommodate the total and consistent energy needs of a country. Further, coal and gas production must be used to supplement the night time hours that lack solar or wind activity. Additionally, the electrical grid has to be beefed up so that solar power from the Southwest or wind power from west Texas can be delivered to both Pacific Northwest and residents in the Northeast. And, as anyone knows, whenever you are forced to build redundancy or excess capacity into a system, the costs can tend skyrocket.

What "Cap and Trade" will do is try to force highly inefficient and costly energy systems into our overall energy production. Redundancy will be rampant and you and I will pay the cost; all to save the planet from what might just be a political scam called "Global Warming."