Cap and Trade: The Wall Street Tax
The cap and trade national energy tax is being sold to the American people as a free-market answer to environmental problems. Dressed in green as it is, people are led to believe that it was a scheme hatched by the environmentally conscious. The truth is that cap and trade is a product of the very same minds that gave us subprime loans and market bubbles, credit default swaps and the financial meltdown. Cap and trade is actually a child of Wall Street. But, nowadays, that doesn’t help in the marketing, does it?
Cap and trade is based on government setting a cap on the total amount of carbon that can be emitted nationally. Companies will then be allowed to buy or sell permits to emit carbon dioxide. So, at a time when Congress is already grappling with the appropriate solution for restructuring our nation’s financial regulatory system, Congress also wants to simultaneously introduce a new, and potentially the largest, commodity market into the mix? As Tyson Slocum, director of energy for Public Citizen, has stated, “You have to ask yourself if it is wise policy to create a new derivatives market on the heels of the collapse of derivatives markets.”
Some environmental watch groups who support the climate change goals of cap and trade have withheld support for the legislation in part because they know that the financial risked posed by this piece of legislation would shake an already volatile financial market. In a recent report, Friends of the Earth warned that the U.S. carbon market could be the next “subprime market” since it carries the same high-risk characteristics. Their report notes that the high risk comes from the fact that carbon credits can be sold before credits are officially issued. As they become more and more scarce, as the legislation guarantees year after year, these new financial products with essentially no actual value will increase in price. The report continues to warn that this provides the potential for speculators to push up market prices, which will “create a bubble and spur the development of subprime assets,” setting the stage for another potential financial meltdown.
They have good reason to worry. After all, the very same people who created the risky financial products which contributed to our financial collapse helped create and then promote cap and trade. And, those very same institutions will be selling carbon credits on Wall Street. Cap and trade’s creator, Goldman Sachs, which is reported to have spent $3.5 million to lobby on climate issues last year, envisioned it as a tax imposed by Washington with the revenues collected by private interests.
According to the Washington Post, Enron – which has gained a more notorious public reputation than most others in corporate America, was one of cap and trade’s chief promoters because they believed it would bring them a major financial windfall. In an internal memo, according to the Post, Enron stated that the Kyoto Agreement, which would regulate energy use, would “do more to promote Enron’s business than almost any other regulatory initiative outside of restructuring the energy and gas industries in Europe and the United States.” When the Kyoto Agreement failed, Enron executives pushed hard for the implementation of a cap and trade policy.
As hedge fund director Michael Masters told Rolling Stone in its article, The Great American Bubble Machine, “We’re saying that Wall Street can set the tax and Wall Street can collect the tax.” The author of that article, Matt Taibbi, remarks that, “This is worse than the bailout: It allows the bank to seize taxpayer money before it’s even collected.” (Emphasis is the original author’s.)
Of course, with the creation of this new market also comes the creation of a new bureaucracy. Bart Chilton, commissioner of the Commodity Futures Trading Commission (CFTC) estimates that it “could be a $2 trillion market within five years.” And, to handle that expansion and meet its responsibilities to police the new futures market for allowances, the CFTC would have to expand its workforce by at least 31%. The Federal Energy Regulatory Commission (FERC), which would be overseeing day-to-day trading, would also have to expand its workforce by 20-30%.
Not to be outdone, the EPA would have to grow to go from regulating 330 million tons of pollution each year to 6 billion tons of carbon dioxide emissions from nearly 7,500 facilities. The Congressional Budget Office (CBO) estimates that the cost of the expanded government alone would be $8 billion over 10-years. It would require about 1500 new regulations and mandates under 21 or more federal agencies.
It is interesting that the same lawmakers who are continuously blaming Wall Street for the financial meltdown are the lead cheerleaders for Wall Street’s plan to buy and sell carbon credits. Perhaps they have bought their own hype and truly believe that this is a plan for climate change. But, the American people are beginning to see through all that. When so many analyses and reports conclude that cap and trade will only result in negligible – if any – changes in the earth’s climate, the American people wonder who is really benefitting from the extra tax they are paying?
Michele Bachmann represents Minnesota’s Sixth Congressional District in the U.S. House of Representatives.