The Climate Change Lobby Has Regrets
Cap and trade is going to cost them.
By Kimberley A. Strassel
Published: March 6, 2009
Jim Rogers is not happy with the Obama administration. Ever since the White House unveiled its costly climate program, the CEO of Duke Energy has been arguing the proposals amount to nothing more than a tax. Indeed.
Mr. Rogers belongs to the U.S. Climate Action Partnership, about 30 companies that decided they were going to dance with the U.S. government to the tune of global warming legislation. The group demanded a "cap-and-trade" system, figuring they'd craft the rules so as to obtain regulatory certainty, with little upfront cost. At the time, Mr. Rogers explained: "If you don't have a seat at the table, you'll wind up on the menu."
Duke sat, yet it and its compatriots are still shaping up to be Washington's breakfast, lunch and dinner. The Obama plan will cost plenty, upfront, which will be borne by Mr. Rogers's customers. The Duke CEO tells me that he still sees opportunity to change the proposal: "This is not my first rodeo, in terms of working with the legislative process." There nonetheless may be a lesson here for companies that invite the U.S. government to saddle them with huge, expensive regulations.
"People are learning," says William Kovacs, vice president of environment, technology and regulatory affairs at the U.S. Chamber of Commerce (which has been cautious about embracing a climate plan). "The Obama budget did more to help us consolidate and coalesce the business community than anything we could have done. It's opened eyes to the fact that this is about a social welfare transfer system, not about climate."
Truth is, any cap-and-trade system is a tax, even if Mr. Obama's plan has only started to force business proponents to admit it. The government sets a cap on how much greenhouse gas can be emitted annually. Companies buy and sell permits that allow them to emit. Customers bear the price of those permits.
But the political question was always how that first batch of permits would end up with companies. Corporate support rested on the belief they'd be "allocated," for free. This would allow them to delay the day when they'd have to pass costs on to consumers, and ignore, for now, the "tax" question.
It didn't take long for the pols to figure out they could auction off permits and spend the loot. President Obama's auction bonanza would earn the feds $650 billion in 10 years, according to the administration's budget estimate -- and that's a low, low, low estimate.
Thus Mr. Rogers's lament. No one can now pretend that this isn't going to cost, and Duke is going to be tagged as tax collector via higher electricity bills. If the customer outrage won't be enough, some utilities will also be forced into fights with state regulators, who have to approve the rate-hike requests.
Congress isn't sympathetic. Most Democrats want the money to spend, while many Republicans have written off companies asking for government freebies. "What you saw when [the Climate Action Partnership] was draping itself in the name of saving mankind, what they were really doing was trying to create the largest earmark in modern history," says Tennessee Republican Sen. Bob Corker of the "allocation" system.
Mr. Corker has been having fun exposing the self-dealing in recent climate bills. Companies aside, he blew an early whistle on Congress's ambitions to use an auction system to enrich itself. During last year's debate on Sen. Barbara Boxer's (D., Calif.) climate bill, he offered an amendment to require rebates of all auction funds to American families. It helped kill the bill, as did a growing awareness among Midwest and Southern Democrats that the legislation would disproportionately hammer their industries and constituents.
Mr. Obama is promising to return auction money to Americans, via a tax cut he proposed on the campaign trail. Mr. Corker calls this a "sleight of hand," since people were counting on a tax cut in any event. Nobody told them they'd have to fund it with higher energy costs. It's also a wealth transfer -- electricity users in coal-heavy Ohio, for instance, will be funding tax cuts for green Californians. Not that congressional spenders have any intention of using this money for tax cuts in the first place.
All this foreshadows the political battles to come. With the business community moving more uniformly against the bill, the administration will be looking to cut a deal. One way to buy support is to offer a certain percentage of the permits for free. Next comes the fight over how much money the government gets to keep versus how much goes to states or individuals. Expect a lot of political courting of Midwest and Southern members, on whom the fate of the Obama plan hinges.
Business leaders might do better to use this as an opportunity to kill the beast. They might get some credit for protecting their customers from what they are now, finally, admitting is a giant tax -- in the middle of a recession.
Source: The Wall Street Journal
Cap and trade is going to cost them.
By Kimberley A. Strassel
Published: March 6, 2009
Jim Rogers is not happy with the Obama administration. Ever since the White House unveiled its costly climate program, the CEO of Duke Energy has been arguing the proposals amount to nothing more than a tax. Indeed.
Mr. Rogers belongs to the U.S. Climate Action Partnership, about 30 companies that decided they were going to dance with the U.S. government to the tune of global warming legislation. The group demanded a "cap-and-trade" system, figuring they'd craft the rules so as to obtain regulatory certainty, with little upfront cost. At the time, Mr. Rogers explained: "If you don't have a seat at the table, you'll wind up on the menu."
Duke sat, yet it and its compatriots are still shaping up to be Washington's breakfast, lunch and dinner. The Obama plan will cost plenty, upfront, which will be borne by Mr. Rogers's customers. The Duke CEO tells me that he still sees opportunity to change the proposal: "This is not my first rodeo, in terms of working with the legislative process." There nonetheless may be a lesson here for companies that invite the U.S. government to saddle them with huge, expensive regulations.
"People are learning," says William Kovacs, vice president of environment, technology and regulatory affairs at the U.S. Chamber of Commerce (which has been cautious about embracing a climate plan). "The Obama budget did more to help us consolidate and coalesce the business community than anything we could have done. It's opened eyes to the fact that this is about a social welfare transfer system, not about climate."
Truth is, any cap-and-trade system is a tax, even if Mr. Obama's plan has only started to force business proponents to admit it. The government sets a cap on how much greenhouse gas can be emitted annually. Companies buy and sell permits that allow them to emit. Customers bear the price of those permits.
But the political question was always how that first batch of permits would end up with companies. Corporate support rested on the belief they'd be "allocated," for free. This would allow them to delay the day when they'd have to pass costs on to consumers, and ignore, for now, the "tax" question.
It didn't take long for the pols to figure out they could auction off permits and spend the loot. President Obama's auction bonanza would earn the feds $650 billion in 10 years, according to the administration's budget estimate -- and that's a low, low, low estimate.
Thus Mr. Rogers's lament. No one can now pretend that this isn't going to cost, and Duke is going to be tagged as tax collector via higher electricity bills. If the customer outrage won't be enough, some utilities will also be forced into fights with state regulators, who have to approve the rate-hike requests.
Congress isn't sympathetic. Most Democrats want the money to spend, while many Republicans have written off companies asking for government freebies. "What you saw when [the Climate Action Partnership] was draping itself in the name of saving mankind, what they were really doing was trying to create the largest earmark in modern history," says Tennessee Republican Sen. Bob Corker of the "allocation" system.
Mr. Corker has been having fun exposing the self-dealing in recent climate bills. Companies aside, he blew an early whistle on Congress's ambitions to use an auction system to enrich itself. During last year's debate on Sen. Barbara Boxer's (D., Calif.) climate bill, he offered an amendment to require rebates of all auction funds to American families. It helped kill the bill, as did a growing awareness among Midwest and Southern Democrats that the legislation would disproportionately hammer their industries and constituents.
Mr. Obama is promising to return auction money to Americans, via a tax cut he proposed on the campaign trail. Mr. Corker calls this a "sleight of hand," since people were counting on a tax cut in any event. Nobody told them they'd have to fund it with higher energy costs. It's also a wealth transfer -- electricity users in coal-heavy Ohio, for instance, will be funding tax cuts for green Californians. Not that congressional spenders have any intention of using this money for tax cuts in the first place.
All this foreshadows the political battles to come. With the business community moving more uniformly against the bill, the administration will be looking to cut a deal. One way to buy support is to offer a certain percentage of the permits for free. Next comes the fight over how much money the government gets to keep versus how much goes to states or individuals. Expect a lot of political courting of Midwest and Southern members, on whom the fate of the Obama plan hinges.
Business leaders might do better to use this as an opportunity to kill the beast. They might get some credit for protecting their customers from what they are now, finally, admitting is a giant tax -- in the middle of a recession.
Source: The Wall Street Journal
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