Friday, November 6, 2009

The cost of cap and trade: part two

From the 09 November 2009 Greater Niagara Newspapers
By Bob Confer

Opponents of cap and trade routinely call the legislation a “job killer.” When nondescript talking points like that get thrown around it’s impossible to make a case for the denial of the bill’s passage. One really needs to qualify and quantify such a statement. Once that is done, it’s very easy, almost too easy, to show how flawed the federal government’s newest idea for taxation and control truly is.

It doesn’t matter if you start at the low end or the high end of the spectrum when it comes to estimating the impact. In last week’s column I mentioned that the Congressional Budget Office estimates the cost to households to be $175 per year in direct energy costs while the Heritage Foundation puts the value closer to $1,500. My company (an average small business employing some 130 people), for example, uses as much energy as 800 homes. Under the CBO’s numbers we’d be paying an extra $140,000 per year in energy costs (a 15 percent increase). Applying the Heritage Foundation’s calculations, we’d be paying an extra $1.2 million every year. Our annual electrical costs are “only” a million dollars now. This would not go unnoticed because neither number - the large or the small - is a pittance. They are significant in all respects.

This is only the tip of the iceberg. Energy is our third-largest cost behind material and labor. The former would rise as well, at a rate of 50 percent or more, because all of the US-based companies that extract natural gas from the earth and transform it to plastic pellets will be saddled with the same odious taxes. When you the consumer buys any product that’s made of plastic – whether it’s one of our durable goods or another company’s disposable commodities – most of what you’re paying on the base cost is to cover the material itself.

Such an all-encompassing increase in expenses would make it extremely difficult if not impossible for Confer Plastics to compete in the marketplace and maintain its customer base. Product prices would rise by a factor of one-half. At that rate, we would lose customers and revenues and be forced to let-go our coworkers. We’re just one of thousands of US manufacturers, large and small and across multiple industries, that would be forced into such an uncomfortable situation. American manufacturing communities would become ghost towns.

When such a thought is broached, pro-cap and trade Congressmen and green activists offer a knee-jerk reaction. They usually say that such a line of thinking is nonsense because all manufacturers would have to increase the price of their goods at the same rate so we’d all be competing on the same level playing field.

That’s a misguided and backwoods way of looking at the modern business world. The cap and traders are living in the 1950s if they think manufacturing begins and ends in the United States. In a hypocritical fashion, those who say they’re looking out for the greater global good are patently oblivious to the fact that we’re living in a global economy. That said, if cap and trade were passed, the exodus of manufacturing jobs to Asia and Mexico would go into overdrive because none of those nations will be forcing their businesses to follow anything even remotely similar to our ridiculously-strict rules.

American companies already have a competitive disadvantage of 22 percent (before labor) versus competitors from our country’s 9 largest trading partners. So, it’s a no-brainer: We must overlook the altruistic pursuits of cap and trade and focus on the realistic outcome of the legislation. It would extend our nation’s jobless recovery from the current recession (which could take 15 years without cap and trade) by stifling development in the private sector, which, in conjunction with other government failures (the impending collapses of Social Security and Medicare) would force a Depression that will make this recession look like a walk in the park.

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