Commentary Magazine


A Bridge too Far?

Martin Feldstein warns us about cap-and-trade:

Companies would buy permits from each other as long as it is cheaper to do that than to make the technological changes needed to eliminate an equivalent amount of CO2 emissions. Companies would also pass along the cost of the permits in their prices, pushing up the relative price of CO2-intensive goods and services such as gasoline, electricity and a range of industrial products. Consumers would respond by cutting back on consumption of CO2-intensive products in favor of other goods and services. This pass-through of the permit cost in higher consumer prices is the primary way the cap-and-trade system would reduce the production of CO2 in the United States.

Since the U.S. accounts for only 25% of CO2 output, a 15% reduction (the bill’s goal) only reduces CO2 output by 4%. Such projection also assumes that American businesses won’t flee overseas to escape our regulatory regime, thereby pushing up CO2 output in other countries and reducing economic activity and jobs here. Feldstein puts the cost at $1,600 per family; others have it at nearly $4,000.

But whichever figure you prefer, the outcome is the same: for the sake of some feel-good and ultimately nonsensical restriction on just our share of CO2 output, the Obama administration and a segment of Congress would willingly throw the economy into a tizzy, raise taxes on Americans (that’s what the “revenue generation” form cap-and-trade is, after all), and set the government up as the uber-watchdog over all industrial output. This is, quite frankly, the largest power grab by the government in recent memory.

Lawmakers of both parties are wary for good reasons. As we enter the era of car-company nationalization, government control of executive compensation, and unprecedented spending and taxation, one has to wonder whether cap-and-trade is a bridge too far, even for this president and Congress.