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Washington's strategy appears to fall short

Friday, February 27, 2009

To the Editor:

Those of us who are concerned about both our nation's environmental and economic well-being are skeptical of the cap and trade strategy that's being promoted in Washington as a tool to combat global warming.

It appears to fall short in its ability to reduce greenhouse gases. Moreover, it could inflict further damage on our weakened economy and put more Americans out of work.

A cap and trade bill that was introduced in (and subsequently rejected by) the Senate last year drew fire for its potentially devastating effect on our economy.

Analysts estimated that it would have caused the loss of as many as 2.3 million U.S. jobs in just the first eight years following its implementation. And millions more workers, chiefly employed in manufacturing industries, would have seen their jobs outsourced overseas as cap and trade sent domestic energy prices soaring.

That's bad enough, but all this economic pain would almost certainly have been inflicted for no good reason.

If you look at the European Union's experience with cap and trade, it appears obvious that this policy doesn't even come close to reaching its environmental goals.

As a result of the 1997 Kyoto Treaty, several European countries joined together in the cap and trade European Trading Scheme. And almost every country has since seen their emissions rate increase.

In fact, once offsets that were handed out to mitigate the financial impact of the system are set aside, emissions under the ETS have actually gone up about 10 percent.

There is no legitimate reason for the United States to follow Europe's lead on this when other strategies, like a carbon tax, are simpler and more effective.

Cap and trade wouldn't work for us any better than it's worked for them. And the financial costs would be exponentially higher.

One of the major failings of cap and trade is its inherent inability to stabilize the cost of complying with environmental regulations.

As emissions permit costs rise and fall on the open market, so do compliance expenses for private businesses. European permit prices now fluctuate an average of 17.5 percent a month and have moved as much as 70 percent in a single day.

So far, the effects of these cost swings have been fairly inconsequential, as the entire global permit market is only valued at about $60 billion.

But if countries like the United States (and in particular China, where extremely high levels of greenhouse gas emissions desperately need to be addressed) get involved, the value of the market would increase dramatically, putting the entire global economy at risk.

Cap and trade would undoubtedly prove to be a bureaucratic nightmare in the United States.

It would require building from scratch a huge regulatory body to oversee permits and emissions (can you imagine how much that would cost taxpayers?) and a completely new financial market where permits could be traded.

Given the experience we've had this past year with a similar market dealing in mortgage-related financial derivatives, it's hard to get excited about that.

Cap and trade wouldn't address the needs of U.S. consumers or businesses, and would put a burden on government that would be difficult -- and expensive -- to manage.

It would take years to implement, wasting precious time in our fight to stop global warming.

In other words, it's simply a bad idea.

I hope Congress and the new administration recognize this and start looking at the other options out there that will do a better job without pushing us toward economic collapse.

Dr. John McGoff

Indianapolis