Wednesday, July 1, 2009

Will Cap & Trade Destroy Alternative Energy?

A very interesting editorial by Steve Margolis at Newmark's Door (HT: TAE) discusses the economics of cap and trade, and outlines how it will bring about the largest transitional gains trap we've ever seen. Among many brilliant points about the economics of cap and trade, Margolis discusses the paradox that the economics of the bill will create for itself, that being that by creating a new market for the trading of carbon, the bill effectively destroys incentive to build the renewable resources it superficially calls to be created:

So we may find ourselves quite a trap. Once carbon-use rights are sold, owners will have an interest in preserving their value—two-thirds of a trillion dollars for openers. Carbon cap and trade will set up an alliance between big carbon owners and environmentalists, as both will favor rigid restrictions even in the face of changing circumstances. Big Carbon would likely align with environmental and NIMBY interests to oppose nuclear power, offshore windmills and other alternative energy sources to support the values of carbon rights.
How very ironic that we would simultaneously elect to tax ourselves into oblivion with the stated purpose being that we sacrifice now to make the necessary technological jumps sooner than the market would normally allow, only to find that the tax itself will disincentivize those jumps being made.

Patriot Room links. Thanks!

1 comment:

  1. Wow, who would have thought that government intervention might have the opposite intended effect! I'm actually kidding. It is arrogance on the part of our elected officials to think that it is their mandate to try and run our lives because we are too stupid to do it ourselves.

    Innovation will happen at its own pace and trying to force it will most likely delay it. It's like putting out cookies and milk in July in the hopes of Santa showing up early. Only thing is, by the time he comes down the chimney the cookies will be stale and the milk sour and he'll leave without putting presents under the tree.