When the housing bubble burst, it exposed an unseemly alliance between special interests and the financial sector. Activists wanted homes for all at any cost, and lenders were happy to oblige despite the inherent risk.
Although the economic devastation this bubble wrought is still not under control, a similar toxic alliance is working on the next one: The green bubble.
USCAP’s Myopic Vision
Failing companies such as AIG, General Electric, and General Motors, already propped up by tax dollars, have partnered with radical environmentalists in a scheme their CEOs believe will allow them to profit on fears about global warming.
Corporate members of the U.S. Climate Action Partnership (USCAP), a coalition of more than 30 businesses and environmental groups urging federal regulation to combat global warming, hope to make money through a government-mandated reduction in greenhouse gases called a "cap-and-trade" system. Emissions such as carbon dioxide would be capped, and companies using more emissions than allotted by the government would have to purchase credits from other businesses.
USCAP and its cap-and-trade agenda were the focus of a U.S. House Energy and Commerce Committee hearing on January 15 — the committee’s first since the more radical Rep. Henry Waxman (D-CA) ousted longtime chairman Rep. John Dingell (D-MI).
Companies hope to profit from selling their excess emissions credits to businesses with high carbon dioxide emissions. Such companies seeking to acquire more credits would include coal-based utilities. Companies burdened with purchasing these credits will naturally have to pass the added cost of doing business on to consumers.
Additionally, some companies want new regulation to mandate sales of their renewable energy products such as wind turbines and solar panels. But banking on cap and trade exposes a myopic vision of the part of these big business executives.
Just as banking CEOs thought real estate prices could only go up, USCAP-affiliated CEOs apparently believe there is scant risk in high energy prices and a massive new bureaucracy.
Hard Hits for U.S. Public
In reality, a cap-and-trade system would unleash a series of adverse economic consequences and hardships on the American people:
A study by the National Association of Manufacturers projected that emissions caps similar to those rejected by the U.S. Senate in 2008 — calling for a 63% cut in emissions by 2050 — would reduce U.S. gross domestic product by up to $269 billion and cost 850,000 jobs by 2014.
An April 2007 Massachusetts Institute of Technology study concluded cap-and-trade restrictions could raise gasoline prices by 29%, electricity prices by 55%, and natural gas prices by 15% by 2015.
A 2007 report by the bipartisan Congressional Budget Office on the cost of cutting carbon emissions by just 15% noted that Americans "would face persistently higher prices for products such as electricity and gasoline. Those price increases would be regressive in that poorer households would bear a larger burden relative to their income than wealthier households would."
Cap-and-Trade’s Negative Effect on Businesses
These CEOs don’t seem to realize the impact that cap-and-trade could have on their own companies. At the 2007 shareholder meeting of USCAP member Caterpillar, the world’s largest manufacturer of construction equipment, CEO James Owens confessed he had not conducted a cost-benefit analysis of emissions regulation on his business. If he had, he would have learned that cap and trade would harm the coal industry — a key Caterpillar customer.
ConocoPhillips CEO James Mulva has also turned a blind eye to the long term. Under cap and trade, his company’s investment in Canadian oil sands, which release about three times more carbon dioxide than traditional oil, would become more costly. Furthermore, the Natural Resources Defense Council, a USCAP partner, currently is taking legal action to block the processing of oil sands at a ConocoPhillips refinery.
General Electric (GE) CEO Jeff Immelt’s vocal support of cap and trade exposes his incompetence that has lead the company’s share price — now trading at 14-year lows — to underperform in both bull and bear markets and to require federal backing of its debt.
Whatever profits GE makes from the sales of its wind turbines will be more than offset by the negative consequences of cap and trade on the broader economy. Higher energy prices, reduced economic growth, and higher unemployment will prolong the recession and cut demand for its other business units’ products such as jet engines, locomotives, and household appliances. In addition, consumers will find it harder to meet payments to GE Money (which provides private label credit cards to various retailers) and to take vacations at NBC Universal theme parks.
Finally, Immelt is risking a public relations nightmare by promoting GE’s "green" image. Not only does GE continue to sell turbines for fossil fuel – generated electricity, but under Immelt’s leadership, GE also sold electricity and oil infrastructure equipment to Iran — a state sponsor of terror that has well-publicized nuclear ambitions.
As cap-and-trade policy raises prices and reduces jobs, America will slip further into economic chaos.
Our economy, already reeling from the bursting of one corporate bubble, can’t afford another one.
—Tom Borelli, PhD (firstname.lastname@example.org) is director of the Free Enterprise Project at the National Center for Public Policy Research.