Cap and Trade Legislation and its Effect on Small Business
by Kelly Smith, www.icanfixupmyhome.com
Cap and Trade is a critical issue for consumers and the companies
that provide goods and services for them. Although the government
paperwork end of this legislation occurs at the production
level, the financial impact will radiate throughout the supply
chain, from the point where raw materials begin their processing
phase, through distribution, and finally down to the consumer
level. It's effectively trickle-down economics, but in a bad
way, not the way President Reagan used the term to stimulate
business.
The concept itself is not new. It was successfully implemented
in the 1990 Clean Air Act Amendments.
What is Cap and Trade?
As the name implies, there are two components in this legislation.
The first, “cap,” refers to capping carbon emissions
from industry. The plan is to set an initial cap and then tighten
it on a yearly basis. The intent is to create financial incentives
to gravitate towards more efficient production and to implement
a financial mandate for using alternative energy sources.
The obvious problem here is that the cart is being put before
the horse; the alternative energy technology just isn't here
yet. Conventional solar panels aren't capable of fueling American
industry and the more promising thin-film solar technology
isn't yet being produced quickly enough to satisfy demand.
Wind turbines don't seem to be taking off either. While they
might prove effective in smaller settings, they have yet to
power a large production unit.
The “trade” component involves carbon credits;
also referred to as permits for greenhouse gas emissions. These
will be created and distributed, possibly by open auction.
Then, carbon credit owners with an excess will be free to trade
them to those with a deficit.
Down Through the Supply Chain
Obviously, the process will have a major economic impact. Although
the paperwork, distribution, and selling of carbon credits
happen only at the top, like any other price of doing business,
the cost will have to be passed on. It's the only way production
can continue. This is where encouraging the use of alternative
energy without direct government intervention becomes questionable.
All other things being equal, there's no incentive to invest
in panels, wind turbines, or other infrastructure. Just pass
the cost down.
To be more competitive and keep market share, companies have
a variety of methods to engage in. None of them are too rosy
in these troubled financial times. More workers can be laid
off to trim payroll in both large and small business. Larger
production units will just move offshore to avoid cap and trade
altogether.
David Kreutzer, Senior Policy Analyst in Energy Economics and
Climate Change at The Heritage Foundation, gave testimony before
the US House of Representative's Energy and Commerce Committee, “By
2029 the job losses in the manufacturing sector will be nearly
3 million. This is over and above the nearly one million manufacturing
job losses that most economists predict will occur even in
the absence of global-warming legislation.”
Other Implications for American Business
Small business involved in production, packaging, and distribution
won't have a big option to make the offshore move. Compound
that with the fact that the looming health care legislation
will likely force small business to provide health care for
all employees or pay a fine into the government coffers. Many
of these companies can't afford to pay for medical coverage
now and stay in business. Cap and Trade will likely be the
last nail in the coffin for many smaller companies; many front
doors will be locked for the last time.
While it's true that the 1990 Clean Air Act Amendments was
effective, the business landscape was very different then.
Consider: emerging nations like China and India were consumers
of American goods and services then. Now, we are the consumers.
And it's not really a news flash that Cap and Trade will not
apply to them. Conversely, this will be a major economic shot
in their arms.
References:
http://www.sightline.org/research/energy/res_pubs/cap-and-tradeFAQ
http://www.edf.org/page.cfm?tagID=1085
http://home-electrical.suite101.com/silicone-wafers/
http://www.heritage.org/Research/EnergyandEnvironment/tst050709b.cfm
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