When Good Legislation Is Bad

[Adrienne Selko]

That's at least how the steel industry would categorize the Cap and Trade legislation. While lower emissions is a worthy and necessary goal, the means to achieve that might not be so good. At a briefing this week by the Institute for Steel and Iron, James L. Wainscott, CEO of AK Steel Corp., had some pretty harsh words about the effect of this legislation on the already beleaguered steel industry."It’s clear to me that, if we don't get our climate policy right, we face the prospect of ceding another huge segment of America's industrial prowess to the BRIC countries -- Brazil, Russia, India and China. And that would mean further loss of our manufacturing jobs.”
(For full article click here )

And the Pew Center on Global Climate Change says that manufacturing industries with high levels of energy use would lose an average 1% of their production to imports from countries where greenhouse gas emissions are not penalized. While Pew says this is a moderate loss, I don’t think those industries who are trying to hold onto their shirts would categorize this as moderate. (For full article click here)

And consumers won't get a great deal if you consider it will cost $1600 per household for a 15% reduction in CO2 emissions, according to a Congressional Budget Office report. (For full article click here )

However some form of this legislation is going to pass and how industry prepares for it will set stage for their survival. At the recent IndustryWeek Best Plants Conference, held in Nashville April 27-29, I had the pleasure of listening to Andrew Singer, Sr. VP, Constellation Energy, NewEnergy Power, tell the audience that “Hope is not a Strategy.” Companies need to be proactive, he said, and incur the costs now when action is voluntary and therefore more reasonably priced. Just imagine the costs, Singer points out, when everyone is scrambling to meet very high standards very quickly.

[wesdavidson]

The numbers are too low, the effects have been understated.

We have seen versions of this same legislation several times before. Each time it is put forward as a cure for an "abuse of the commons". In each case, yes, it addresses an actual problem. In each case it avoids dealing with the specifics by simply restricting all use. It is always put forward as something that will "leave vested interests intact". It always results in a decline. It always ends up as a "cap and close". However, it has always been regional, based on land or water areas, it has always dealt with a resource which could be produced in adequate quantity somewhere else within the US, or which was importable. This time, because we are dealing with energy which we cannot bring here from China of Africa, and the atmospere, which blankets the whole US, there is no refuge from this legislation without leaving the Continental US.

The first instance I will mention occured following the civil war, it regulated mining, water, highways, and settlement in the territories won from Mexico in 1948. It is known as the mining act of 1866. This regulation has been extended under additional acts, eventually resulting in almost a complete shutdown of new mining in the western US. Regulations have also been extended to private lands. But, minerals can be imported.

The 2nd example is the Forest Reserve act of 1891. Passed without debate, it did not include restrictions or regulations at first. It was used to withdraw land from homesteading, water developement, mining, timbering, and grazing. Interestingly enough it did not require that the land set aside have actual trees. Lumber on private land is now regulated as well by environmental acts, luckily, we can import lumber.

The third Act was the Taylor Grazing Act of 1934. It Capped public land grazing, and granted "permits" which could only be purchased by adjacent land owners. Initially it was promoted as a salvation for local comunities, it virtually eliminated homesteading, -hence further economic developement in most western states, and institutionalized the ownership of the greater part of the western US by the federal government. The grazing permits have been progressivly cut since then. The cost of permits, traded from one livestock operation to another soon became more valuable than the deeded land base on many ranches.There have never been increases in the allotments, despite improving land condition and over 70 years of management and grazer investment in range improvement. This past year, it has been decided that non grazers can now buy permits, and permanently retire them. The value of the base private deeded lands has in many been all but destroyed for agricultural use. That private land now in many cases has been sold for vacation lots and there is no grazing on many areas of public land. Lucky us, Australia exports sheep and beef.

My point? Is that once it is capped, the right to convert carbon for energy or process use will be finite. Worst will be if the basline were to be drawn now, in the depth of the recessionary production slump. The US could find itself legislatively prohibited from recovery. As new users wish to come on line, the carbon permit will be the determining factor. The price of a carbon for a taxi may well outstrip the cost of the vehicle, and become the greatest single cost. There is also no limit to the taxation of the quantified "permit", or to the number of special interest groups which will find ways to strap carbon permits to social and environmental agendas. Another factor is that while at this time the carbon factors are calculated by primarily combustion of fossil fuels, in the future this could be extended to any release or conversion of carbon, by any process, natural or manmade. This is a classic case of a government action , ostensibly good, with untold unintended consequences.

( In the early 1990's I was a part of a study group which wrote reports on history and application of the mining law of 1866, and subsequent Federal land use laws, which resulted in changes to state laws in at least 14 states and changes to Interior Department policies. Yes it was to the benefit of industry, land users and agriculture.)