Free markets can best address environmental problems

October 18, 2010 1:34PM

The Tennessee Center for Policy Research’s Allyn Milojevich explains how free market environmentalism is a better solution than cap and trade in Sunday’s Tennessean. Allyn is the recent author of Cap & Trade: A (Lame) Duck Proposal, which shows the economic impact cap and trade would have on Tennessee. To read the study, click here. by Allyn Milojevich In June 2009, the U.S. House of Rep­re­sen­ta­tives passed “cap and trade,” aim­ing to reduce green­house gas emis­sions by 83 per­cent over the next four decades. While the bill is best known for enact­ing a sys­tem of car­bon cred­its that can be traded on a pseudo-market, it also cre­ates a series of reg­u­la­tions meant to sub­si­dize renew­able energy. Most of these renew­able sources of energy have been unprof­itable in the pri­vate sec­tor and their use will only increase con­sumer costs. The Sen­ate is expected to put sim­i­lar leg­is­la­tion to a vote after the Novem­ber election. In Ten­nessee, it is esti­mated that the cap and trade sys­tem would cause gaso­line prices to rise by 27 per­cent, elec­tric­ity prices 64 per­cent and nat­ural gas prices 73 per­cent over the next two decades. The aver­age house­hold energy bill could increase from $124 to $327 each month by 2030. The cap and trade scheme would dis­pro­por­tion­ately impact those on fixed incomes, such as the elderly. Because they spend a larger per­cent­age of their income on energy, those with the low­est incomes would face a 5 per­cent jump in their energy costs. Fur­ther, due to an increase in man­u­fac­tur­ing costs, up to 52,000 jobs could be lost in Ten­nessee alone. Tennessee’s schools, uni­ver­si­ties and hos­pi­tals could also expe­ri­ence a 20 to 30 per­cent increase in energy prices, forc­ing tuition and med­ical bills to rise. Higher energy prices would have a large impact on Tennessee’s gross state prod­uct (GSP). It is esti­mated that Tennessee’s GSP could drop by $9.8 bil­lion annu­ally. Man­u­fac­tur­ing as a whole might fall as much as 6.6 per­cent while energy inten­sive sec­tors — like chem­i­cal pro­cess­ing and auto­mo­bile pro­duc­tion — could plum­met by as much as 14 percent. The “other half” of the House-approved bill pro­poses a “renew­able port­fo­lio stan­dard” (RPS), requir­ing util­ity com­pa­nies to pro­vide 20 per­cent of their energy from “green” sources. These sources are expen­sive and inef­fi­cient, though Ten­nessee has already pledged tax­payer dol­lar towards this dif­fi­cult goal. The state, in con­junc­tion with the Uni­ver­sity of Ten­nessee, has allo­cated $32.5 mil­lion for a solar farm in Hay­wood County. While this project may cre­ate a few jobs, it is unlikely to raise the per­cent­age of Ten­nessee power from solar sources far above one percent. The leg­is­la­tion also cements in place the use of ethanol as a fuel. Ten­nessee has sup­ported “ethanol hys­te­ria” by mak­ing an ini­tial invest­ment of $40.7 mil­lion, and promis­ing an addi­tional $5.3 mil­lion annu­ally, to build a plant for con­vert­ing switch­grass to ethanol. Before tax­pay­ers get too excited about this alter­na­tive energy they’re invest­ing in, it should be noted that accord­ing to the venture’s chief exec­u­tive, “tech­nol­ogy for con­vert­ing switch­grass into fuel is still in development.” Ten­nesseans should turn to the free mar­ket, clearly defined prop­erty rights and tort law to effi­ciently address envi­ron­men­tal problems. Pri­vate enter­prises have also attempted to address car­bon con­cerns with­out gov­ern­ment prod­ding, such as Calera, a California-based com­pany that devel­oped a method for trans­form­ing CO2 into cement. Rather than fix our nation’s envi­ron­men­tal trou­bles, cap and trade leg­is­la­tion will do noth­ing more than harm Ten­nessee fam­i­lies already strug­gling to stay afloat. Allyn K. Milo­je­vich is a research fel­low at the Ten­nessee Cen­ter for Pol­icy Research, the state’s free market think tank.