Our Take on the Climate Change Bill

We’d love nothing more than to leave this debate to Al Gore and Wall Street Journal editorialists. And for the most part, we will. But as you know, the House passed their climate change bill late Friday, and the entire energy industry is targeted for reform. Here’s the rundown in case you didn’t get to read its 1,200 pages — as all of our representatives in Washington surely did:

  • Greenhouse gases must be cut 17% by 2020 and 80% by 2050. Emissions from factories, power plants, refineries and energy distributors will make up most of the cut. The infamous cow fart emission cap was taken out
  • A cap-and-trade system will cut these emissions. The government will issue a limited number of 1-ton permits each year, which companies will have to obtain if they wish to emit greenhouse gases. Each year, the government will issue fewer permits. Thus, companies will have to clean up operations, use more green alternatives or invest money in “offset projects” — like a paper mill planting more trees
  • 12% of power from electric utility companies must be from renewable resources by 2020
  • New office buildings must be 30% more efficient by 2012
  • The Congressional Budget Office expects the current rendition of this bill to cost U.S. households $175 a year. We’ve heard alternative estimates as high as $2,000.

“Rome is burning,” says our energy man Byron King. “Well, maybe not. This could alter our culture’s use of the metaphor. Burning Rome? Sorry, not without your carbon permit.

“After a millennium of merely tossing sticks and logs into burn pits, the Industrial Revolution was when mankind finally figured out how to use ancient forms of stored energy — coal, oil and natural gas — to build and maintain a vast manufacturing economy. In consequence of the carbon-fuelled revolution in productivity, the earth went from a population of about a billion, to near seven billion today.

“And now, per the House bill, our government has started on the way to reversing THAT Industrial Revolution. The new Big Idea is that there will be another, ‘carbon neutral’ Industrial Revolution, based on harnessing solar, wind and geothermal energy. Carbon is sooooo 20th century. Carbon neutral is the new black.

“The House legislation is 1,200 pages of special deals and giveaways, grafted onto a Soviet-style 40-Year Plan. (I should note that even the Soviets, for all their ambitions, worked in 5-year plans.) Cap and trade will be the largest tax increase in U.S. history. It’s the triumph of the tax raisers, central planners and controllers, and an arrow into the chest cavity of free market capitalism.

“So with higher energy costs throughout the economy, plus an immense new level of state control over economic activity, can the U.S. — at least as we know it — make the transition to that mythical carbon-neutral energy economy? My hunch is no. Cap and trade will breed more problems, which will lead to more taxes and even more regulations. There’s never just one cockroach. And while we live through the consequences of what’s going to happen, there will be a lot of misallocation of resources throughout the economy.

“I hope your subscription is current to Outstanding Investments, because that’s where I’ll be showing you how to invest your way around the consequences of our national hubris.”

The Daily Reckoning