Cap and trade is not the answer

In a congressional variant on the Book of Genesis, a whole new economy, called "cap and trade," is being created as we speak out of previous nothingness.

Cap and trade is being put forth legislatively as the U.S. solution to global warming.

The premise underlying the legislation is that the combustion of hydrocarbons (coal, oil and gas) for energy purposes sends "greenhouse gases" into the atmosphere where they are trapped, leading to the "greenhouse effect."

Of course, our economy primarily is based on hydrocarbon combustion — from heating and cooling, to industrial operations, to transportation.

If the Federal legislation passes, it will establish a "cap" on greenhouse gas emissions, particularly carbon dioxide (CO2), from all industrial sectors and emission sources. Deciding what is a suitable cap in so many thousands of instances presents just one of the vexing and dubious administrative problems with cap and trade.

At the time the caps are imposed, a new market will be created allowing the trading of "credits." This will come about because a company or plant that emits at levels beneath its cap would have credits that would have a dollar value.

A company that is over its limits could buy those credits to come into compliance.

The idea is to incentivize non-carbon-emitting activities and make carbon-emitting activities more expensive. Thus the "trade" part of cap and trade occurs — buying and selling credits to stay underneath

The overall goal is to lower CO2 levels by 17 percent by 2020, compared to 2005 emissions, and 83 percent by midcentury.

While these goals look good in headlines, they are mathematically ludicrous.

Therefore, very few emission sources are going to be able to meet the new standards, much less beat them, and if nobody beats them, nobody generates credits to trade.

Certainly there will be far more demand for credits than are available through reductions.

Therein lies the rub.

To meet this enormous government-created demand, the government will issue credits and sell them into the market at whatever price they deem appropriate (they'll give some away initially to ease the pain, which is creating a "feeding frenzy" for free credits in itself before the legislation is even out of committee).

Call it what you want, but in reality, it's an energy tax.

The manner in which the credits are issued, the price is set, and who gets how many begs for political manipulation.

In addition, the logistical nightmare of managing the new credit market begs for bureaucratic mismanagement and market manipulation.

In Europe, where it has been in place for some years, it has been rife with gamesmanship and outright fraud.

And, more importantly, it hasn't worked. The European Commission reports that from 2005 through 2007, CO2 emissions actually increased.

In summary, cap and trade, as a solution for climate change, is a politically contrived solution to a politically enflamed problem.

It will be a nightmare to implement, it is fraught with complications, it invites gamesmanship, manipulation and fraud, and it has not worked over years of effort where implemented in the European Union.

More importantly, it will not resolve climate change because, not only are the proposed reductions unachievable, the system is not global in nature (China is the largest CO2 emitter).

Because there is no near-term solution to replacing carbon-based fuels with a reliable and affordable alternative, the caps merely serve to increase the cost of energy, not for the world, mind you, but only in the U.S. where this "energy tax" is being levied.

Increased energy costs means an increase in the cost of U.S. goods and services, which in turn makes our country less competitive in the global market, damages our already weak economy, impairs our quality of life, and compromises our national security.

Yes, cap and trade is many things, but it definitely is not the answer to climate change.

T. Greg Merrion is President of Merrion Oil and Gas, based in Farmington, and also president of the statewide public policy organization, New Mexico Prosperity Project.