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Monday, May 25, 2009

Cap and Trade: Picking Winners and Losers By Political Connections

For a while, I have been pointing out that not only is cap and trade in trouble of not passing, but if it does pass, it will only pass through a series of pay offs. The bill, now known as Waxman/Markey, just recently made it out of the energy committee. As it gets shaped, my worst fears are now being realized.

The bill would set a cap on carbon emissions. Then, any business that wants to emit more carbons than the cap would have to buy a permit either from the government itself or from other companies. What's resulting is that politically connected businesses and industries are being given these permits while those with no connections will have to pay.

In order to get the approval of powerful member, John Dingel, this bill gave all sorts of giveaways to the auto industry. (Dingell is from Michigan) Here is how the Detroit News described the pay off.

U.S. Rep. John Dingell, D-Dearborn, signed on after the auto industry was promised 3 percent of the federal government's revenue from emissions permits for five years, which would be worth billions of dollars. The revenue is linked to investments in new vehicle technology. The industry has also been promised up to $50 billion in new technology loans.

In fact, so many interests have been paid off that the Wall Street Journal reports that 85% of the permits would be given away in the first 20 years.

This past week, Rep. Henry Waxman's House Energy and Commerce Committee passed a climate-change bill that gives away 85% of the emission permits until 2026. President Obama applauded, calling the bill "a historic leap."


The point of climate-change legislation is to raise the price of activities that emit carbon so consumers and businesses engage in fewer of them, and favor alternatives that contribute less to climate change. Taxing carbon is one way to do that, but it's unpopular.

Cap-and-trade became the politicians' favorite alternative because it accomplished what a carbon tax would, without an explicit tax. Auctioning off the permits, economists advised, was the most efficient way to allocate the rights; steer at least some of the money raised toward research and development and to compensate lower-income consumers for higher energy prices.

So, what is happening is that those with political connections are able to either avoid having to pay for these permits or at least have the payment heavily subsidized.

There's more. The Hill is reporting that Collin Peterson (D-Minnesota) is demanding that this same legislation go in front of his Agriculture Committee or lose the support of everyone this committee.

A committee chairman is threatening House leaders to either give him a role in shaping climate change legislation or risk losing every Democratic vote on his panel when the bill hits the floor.

Rep. Collin Peterson (Minn.), the outspoken Democratic chairman of the Agriculture panel, has been making it well-known that he wants his committee to have full jurisdictional authority over whatever climate change bill emerges from Chairman Henry Waxman’s (D-Calif.) Energy and Commerce Committee.

But Peterson is no longer making idle threats.

Peterson earlier this week met with the 26 Democrats on his panel and emerged with a “virtually unanimous” agreement that his committee members would stand with him in opposition to a climate change bill that didn’t adequately address the concerns of the agriculture industry, according to one of those Democrats.

The most obscene example of the politically connected making out with this legislation is the connection between General Electric, the President, and this bill.

So, through a subsidiary called Greenhouse Gas Service, GE will be able to facilitate the sale of billions of these permits if this legislation passes. Meanwhile, both its NBC and MSNBC subsidiaries have become nothing more than a propaganda arm for the White House and NBC has become a cheerleader for the environment.

So, all over the place we have legislation that is a payoff for those that are politically connected and the only losers are those with no political connections, the economy, as well as the environment.

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