Cap and Trade = 15% Income Tax Hike

so says the Obama administration, it turns out.

Remember Cap and Trade? The House passed this controversial climate change bill H.R. 2454 (what isn't controversial these days?) back in June, with an extremely close vote (219-212).

Declan McCullagh of CBS News, who has recently written probing articles on health care "reform" and cyberspace regulation, reports that Cap and Trade would cost families $1761 a year, equivalent of 15% increase in personal income tax.

The information comes from the previously undisclosed documents by the Obama administration and Treasury, which were obtained under the Freedom of Information Act by the Competitive Enterprise Institute and released on Tuesday, according to McCullagh.

Obama Admin: Cap And Trade Could Cost Families $1,761 A Year
(Declan McCullagh, 9/15/09 CBS News)

"The Obama administration has privately concluded that a cap and trade law would cost American taxpayers up to $200 billion a year, the equivalent of hiking personal income taxes by about 15 percent.

"A previously unreleased analysis prepared by the U.S. Department of Treasury says the total in new taxes would be between $100 billion to $200 billion a year. At the upper end of the administration's estimate, the cost per American household would be an extra $1,761 a year.

"A second memorandum, which was prepared for Obama's transition team after the November election, says this about climate change policies: "Economic costs will likely be on the order of 1 percent of GDP, making them equal in scale to all existing environmental regulation." "

The article has a link to the documents obtained under FOIA, which I link here also.

GOP's estimate is about $3100 per family a year, or $366 billion a year. Democrats' number is $800 per family, or less than $100 billion a year. The Heritage Foundation says it will be $1500 per family a year by 2035.

Considering the government's track record in containing costs, we could safely jettison the lowest estimate.

""Heritage is saying publicly what the administration is saying to itself privately," says Christopher Horner, a senior fellow at the Competitive Enterprise Institute who filed the FOIA request. "It's nice to see they're not spinning each other behind closed doors."

""They're not telling you the cost -- they're not telling you the benefit," says Horner, who wrote the Politically Incorrect Guide to Global Warming. "If they don't tell you the cost, and they don't tell you the benefit, what are they telling you? They're just talking about global salvation.""

Wealth distribution within the U.S., and from the U.S. to the rest of the world, particularly poorer countries. But the one who is set to gain most is the government: 15% more tax revenue, not from the polluting industries who will get numerous subsidies, but from the consumers, rich and not so rich alike.

"Because personal income tax revenues bring in around $1.37 trillion a year, a $200 billion additional tax would be the equivalent of a 15 percent increase a year. A $100 billion additional tax would represent a 7 or 8 percent increase a year."

(But watch out, opponents of cap and trade, health care, or anything that's been proposed. According to the former president Jimmy Carter and numerous other pundits (the article linked was written by a neo-conservative), it seems you are racist and you don't even know it if you dare oppose President Obama's policies. To me as a non-native here, it is totally incomprehensible, though I've been trying to understand the rationale.)

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New Bubble Machine - Carbon Emission Allowance

Congressional Budget Office (CBO), in its analysis of the climate bill titled "The Estimated Costs to Households From the Cap-and-Trade Provisions of H.R. 2454" says the following about the emission allowance under the Cap and Trade provision of the bill:

"CBO estimates that the price of an allowance, which would permit one ton of GHG emissions measured in CO2 equivalents, in 2020 would be $28.2. H.R. 2454 would require the federal government to sell a portion of the allowances and distribute the remainder to specified entities at no cost. The portions of allowances that were sold and distributed for free would vary from year to year. This analysis focuses on the year 2020, when 17 percent of the allowances would be sold by the government and the remaining 83 percent would be given away. Entities that received allowances could sell them or use them to meet their compliance obligations."

One of the big problems (there are many) with the Cap and Trade way of reducing the pollution (whether it's sulphur dioxide or nitrogen oxide or carbon dioxide) is how the initial allowance is priced and allocated. Initial allowance will be arbitrarily set by the government, both allowance amount and price. And when the allowance is not auctioned off entirely but is given away free to certain companies/industries as seen appropriate by the government, the entire process is screaming "manipulation", "corruption", "collusion".

So, entities that received free allowances from the government could sell them for profit if they don't need them. Get them for free, sell them for some price: infinite return on the money. Or they can choose to keep them, waiting for future price appreciation as the emission limit gets lower and lower. Some entities may get 4 free allowances for 1 paid allowance, others may get 2 free for 1 paid, yet others may get 10 free for 1 paid. Who knows? No one knows.

Is it just me, or do you also see a dot-com bubble era practice of investment banks giving pre-IPO shares to certain people at a low price so that these people can turn around and sell after IPO for filthy profits?

Now comes valuable middlemen (like Goldman Sachs) who will offer to manage the allowances. I can envision a whole set of derivatives coming out of this allowances business. Futures market, options on the futures to start. Then, to smooth out the allowance cost over the years and hedge against allowance price fluctuation, they will develop an allowance swap, much like interest rate swap. Since the number of allowances are set to decrease over the years, the price of allowances is assumed to be increasing all the time. So what better product, if they can package it right, to sell to pension funds and college endowments who want to hold long positions only (like they did during the oil bubble in 2008)?

Just like CDS, at some point there will be buyers and sellers of derivatives on allowances without underlying commodity (in this case, source of pollution), even if there is no intrinsic value to the allowance other than what the government mandates. (U.S. dollar bill does not have intrinsic value either, other than as a piece of paper and the word from the Federal Reserve "Trust us".)

No wonder big businesses support this bill. If E.U.'s experience is any indication, the carbon emission will not decrease because of the cap and trade (in E.U.'s case, it decreased by 3% but not due to the cap and trade; it is due to the recession), but the taxpayers will be presented with increased energy bills and attendant price increase on just about every product with no appreciable benefit.

This is the new bubble that the government wants to blow. It is set to feed on the money of people who have hardly any say in the matter: the taxpayers money. So the bubble will keep on blowing at the expense of the taxpayers until they realize they've been had.

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300 Pages of Climate Bill (H.R. 2454) That Were Missing

Has anyone read it (other than Mr. Boehner who read it on the House floor)? For that matter, has anyone at all read the entire bill?

Here's the PDF file of what was missing.

I watched the youtube video linked above of House Minority Leader reading the bill while following the pages on the PDF file.

• Definition of biomass
• Renewable energy usage percentage mandate for federal agencies
• High-efficiency gas turbine research and development
• New housing standards (based on California's)
• Energy rating for houses (that sounds like a death knell to the existing house market)

That's up to about page 46. It seems like the federal government is going to dictate everything from housing standard to building permit price.

California housing standards that Mr. Boehner is referring to is 2008 Building Energy Efficiency Standards for Residential and Nonresidential Buildings, a.k.a. Title 24. It looks monstrous, unless you revel in a bureaucratic maze and/or you are on the receiving end of increased fees for the various permits.

It seems we have a new bubble. Instead of resulting in asset price inflation like the previous bubbles did, this one may collapse everything else but itself. The bubble that's taking shape is a government bubble, which will grow and grow at the expense of everything else.

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Q&A about Climate Bill, a la Associated Press

A news article from AP, or so I think, but the entire article could have been simply lifted from the PR literature published by the Democratic supporters of the climate bill (H.R. 2454) that passed the House today.

Questions and answers about the US climate bill (6/26/09 AP via Yahoo Finance) written by Dina Cappiello and Eric Carvin

You can read the article by following the above link. I particularly like the last Q&A that these writers created:

Q: Why is it so important to tackle global warming anyway?

A: Left untended, scientists say, global warming will cause sea levels to rise, increase storms and worsen air pollution. For these reasons, the Environmental Protection Agency recently concluded that six greenhouse gases pose dangers to human health and welfare. And politically, without U.S. action, developing countries like China probably will not agree to mandatory pollution limits.

Not all "scientists" say that, and certainly not all of them link all of global warming to human causes. China probably will not agree, without U.S. action? My humble guess is that China probably will not agree, with or without U.S. action. (Not only that, they will probably stop buying U.S. Treasuries to punish the U.S. for trying to impose limits on them.)

I love their very descriptive consequences of global warming: sea will rise, more storms will hit us... Sky will fall, stars will go dim, mountains will crumble, cow will jump over the moon, and little dog will laugh to see such sight..

In the meantime, we'd better hope it is indeed global warming, not global cooling, as some scientists do think (see my post from 6/23/09).

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Cap And Trade Is On - HR 2454 Passed The House

American Clean Energy and Security Act of 2009 (H.R. 2454) has passed the House, 219 - 212, closer than the trial vote but passed nonetheless. Now it goes to the Senate.

• Democrats: Yes 211, No 44, NV 1
• Republicans: Yes 8, No 168, NV 2

So now, the bill that hardly anyone in the House of Representatives read, with 300 pages missing ("but always available on the Internet" or the "cloak room" of the House), is going to dictate the energy policy of the world.

8 Republicans who voted Yes:

• Bono Mack (CA)
• Castle (DE)
• Kirk (IL)
• Lance (NJ)
• LoBiondo (NJ)
• McHugh (NY)
• Reichert (WA)
• Smith (NJ)

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"Official" Copy Of Climate Bill Missing 300 Pages

I was just watching c-span coverage of the House floor debate. It's hilarious. And they are going to vote for this bill?

You can watch it yourself at: http://www.cspan.org/Watch/C-SPAN_wm.aspx

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