Some Context on Bankrupting Coal

Is this the eleventh hour October surprise?






It remains to be seen. This is an issue that is difficult to judge. On the one hand, the McCain campaign would likely have loved for this to run in a loop for about four days. That would have been devastating. Of course, the MSM would have never allowed that anyway. In fact, I have only seen it on Fox News so far. That said, it will be heard by the coal community and it is rather large in states like Pennsylvania, Ohio, and Virginia. On the other hand, being released this close to the election, it also doesn't give the Obama campaign enough time to respond. We will see.

What the comments reveal is the utter nonsense of cap and trade itself. The Obama campaign claims these comments were taken out of context. They weren't. The more effective cap and trade is the more likely it will be to bankrupt and industry that doesn't conform to its guidelines. Here is how cap and trade works.

Emissions trading (or emission trading) is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. It is sometimes called cap and trade.

A coal power plant in Germany. Due to emissions trading, coal might become less competitive as a fuel.

A central authority (usually a government or international body) sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emission allowance must buy credits from those who pollute less. The transfer of allowances is referred to as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed. Thus, in theory, those that can
easily reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest possible cost to society.[1]

The problem with cap and trade is that it forces new behavior not through market forces but through government will. That is always dangerous. Cap and trade sets mandates for the amount of emissions and company's technology can emit, and then it punishes with extra fees any company that goes over. Furthermore, it gives rewards to those that emit less than is mandated. It forces a change in behavior set to an arbitrary government guideline, and the change is forced even if new technologies aren't viable or economically sustainable. Of course, in an aggressive cap and trade system, coal will go bankrupt. That's because coal won't meet the emissions standards, and it will be punished with exorbitant fees.

Once again, we are shocked by something that Barack Obama said even though it isn't really new. He hasn't hidden his agenda for aggressive cap and trade. It just appears the public hasn't yet processed what it will all mean.

Personally, I think there is a much better approach to being eco friendly. Rather than punishing bad behavior, I would reward good behavior. My plan is similar to my plan for energy independence. Set emissions standards, or better yet, isolate those technologies that are conducive for less emissions, and reward those technologies with a break in income tax, capital gains tax, and dividend tax. (or better yet make all those taxes zero) Doing this would unleash the market forces necessary to innovate to better technologies. Government mandates for changes despite market forces. That's the flaw in Obama's plan, and it's why in reality his comments were perfectly in context.

Of course, it should be noted that McCain also supports cap and trade so he would likely impose a system similar to Obama's.