When it comes to the environment, I am a tree hugger. I believe man’s carbon imprint on God’s Earth is both immoral and unsustainable. I also happen to be, however, a fiscal conservative. I am skeptical whenever government tries to meddle with my pocketbook or interfere with the market equilibrium, as they have a reliable record of being inefficient, wasteful and just plain stupid. Having these beliefs has led me to a conclusion: Cap and Trade will not work – but that doesn’t mean we can’t save the environment.
The idea behind Cap and Trade is that the government sets a price for a carbon permit to be traded on a market. The government would limit the amount of permits issued and the permits would be traded among companies. Tax revenues would be collected by the government, where the geniuses in Washington would supposedly figure out how to fund the next green innovation. So by definition, the key problem with Cap and Trade is that it relies on government’s judgment, not a scientist or engineer’s ingenuity.
It seems reasonable at first that government would be funding specific areas of the energy sector – wind, solar, or bio-fuels – from this tax revenue collected from Cap and Trade. But how would Washington figure out which alternative energy source makes the best sense to reward tax breaks? The way they figure everything out — by listening to the most influential special interest.
The company that has the loudest lobbyist that writes the fattest check to senators working on this legislation will win tax benefits, not the company that deserves it. Hence, government will defer real, logical change when it comes to helping the environment, and that’s a problem.
Apart from the debacle of government choosing our energy sources, the idea of Cap and Trade itself is flawed. The MIT report that came out a few months ago said that Cap and Trade would cost the average family thousands in yearly expenses. The report stated that jobs would be cut, if not shipped overseas to some extent.
Not to mention, it’s Global Warming that’s the problem, not American Warming. Even if we conserve 10% of carbon emissions by this taxation, the flood of people who will be driving new cars and opening coal mines in India and China will counteract these reductions. That’s the problem with conservation – it doesn’t fundamentally change our energy needs from fossil fuels to energies that do not hurt the environment. It’s just a redistribution of wealth. Understanding all of this, I propose an alternate route.
Instead of taxing carbon or hoping Congress can figure out which alternative energy will replace fossil fuels, I propose tax benefits for research in this field – big ones. Let the free market work by giving it an incentive to shift in the direction of clean energies. I promise with enough research money, someone from Harvard or Princeton will figure out how to run a car on maple syrup. Some scientist will figure out how to make the energy grid gather wind energy and solar energy together efficiently. Engineers will be able to test and innovate these discoveries to solve our energy needs.
Then, when these research efforts yield results as to which alternative energy to invest in, give the free market a reason to produce it. Give the victor of this research effort massive tax breaks, and the market will take advantage of it. All that government will need to do is create broad conditions for these tax subsidies. Congress would only have to mandate that the new green technologies vying for tax breaks would only produce a certain amount of carbon emissions. This way, politicians would not be choosing our energy needs, the market would.
I think this approach would work a lot better than the Cap and Trade proposals coming out of Washington. It cuts government out of the process as much as possible, while embracing basic Supply-Side principles that have proven to work. I think our best bet at solving Global Warming is to give the free market a nudge in the green direction, in the form of tax relief.
And realistically, in order for there to be real green effort it needs to be profitable. The economy will not turn green unless fuel efficient cars, solar panels and wind turbines are profitable. Just mindlessly funding an alternative energy source the government picks cannot fundamentally change how we use energy — scientists and business leaders need to be a part of the effort as well. It has to be a long term and comprehensive plan, not one based in short term, political motives.
The transition may take a few years to implement, but I think the process of funding research and then acting on that research can work. In doing so, we can create sustainable growth while saving the planet. Not a bad deal.