Climate Capitalism

The Pew Center on Global Climate Change has released a report this week that should help put some hard data back in the debate about a possible U.S. Cap and Trade system.

The study assumes CO2 price of $15/ton. Since there is not historical cap-and-trade data for the U.S. the study used statistical simulations looking at 20 years of data for 400 U.S. industries.

Industry interests claim that mandatory caps in the U.S., if not mirrored in the emerging economies of India and China will only outsource carbon emissions and further cripple Americans industrial sector.

Basic economics suggests that as the price of production increases in the U.S. due to the cost of carbon taxation, you can expect two things to happen, consumption should decrease and imports for comparable products should increase (i.e. consumption shifts from U.S. production to foreign production.) Industry’s claim is that rising prices will send consumers running for lower-priced, high-carbon alternatives and take the U.S. economy into a tail spin. The authors of the report claim that based on their analysis “energy-intensive manufacturers are likely to face only modest ‘competitiveness’ impacts under a U.S. greenhouse gas cap-and-trade program.” They suggest that environmental regulations make only a small impact in the cost of production. The real drivers of cost include the availability of skilled labor, access to capital, access to natural resources, and transportation costs. As the report puts it, “It is clear from this analysis that fear of competitive harm should not stand as an obstacle to strong climate change policy.”

To be clear, a cap-and-trade system is not a silver-bullet to solving global warming. Cap-and-trade focuses on mitigating emissions from industry and energy production and does little to solve our addiction the oil that runs our transportation system. That said, hopefully this report will help battle the fear-mongering that is sure to come from industry interests intent on derailing any efforts to enact a meaningful cap-and-trade system. However, it is heartening to read science supporting the general notion that we can use the tools of capitalism to help move towards a more efficient future.

Read full report here: http://www.pewclimate.org/docUploads/competitiveness-impacts-report.pdf