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Brooks Wilson's Economics Blog: Chu on Cap and Trade

Tuesday, September 22, 2009

Chu on Cap and Trade

(HT Drudge) Ian Talley of the Wall Street Journal describes remarks by Energy Secretary Steven Chu at a smart grid conference in, "Steven Chu: Americans Are Like ‘Teenage Kids’ When It Comes to Energy."

“The American public…just like your teenage kids, aren’t acting in a way that they should act.” Dr. Chu said. “The American public has to really understand in their core how important this issue is.”

It is exactly statements like this that convince the American public that Washington is full of elitists that view them as inferior intellectually and morally.  In addition to teaching adults, or perhaps rather than attempting to teach adults, he administration intends to teach our children. 

The administration aims to teach them—literally. The Environmental Protection Agency is focusing on real children. Partnering with the Parent Teacher Organization, the agency earlier this month launched a cross-country tour of 6,000 schools to teach students about climate change and energy efficiency.
Talley continues.
Still, Secretary Chu said he didn’t think that the public would throw the same political temper tantrum over climate legislation has has happened with the healthcare debate.

Asked if he expected a town-hall style pushback, Dr. Chu said he was optimistic the public would buy the administration’s arguments that energy efficiency and caps on greenhouse-gas emissions will spark an economic rebound.

“I don’t think so…maybe I’m optimistic, but there’s very little debate” that a new green energy economy will bring economic prosperity, Mr. Chu told reporters.
I believe Chu errs in his economic analysis in arguing that cap and trade legislation will "spark" economic growth and "bring economic prosperity."  As a new and costly policy designed to alter decisions about energy use, the policy will create uncertainty in every sector of the economy that will delay a rebound as energy users, both consumers and producers, attempt to analyze the impact of the bill and discover cheaper fuels and more efficient production methods.  Some geographic areas that have superior "green" energy sources will grow and areas with superior high carbon energy sources will decline, forcing businesses and households to relocate.  Benefits from the plan will not be felt for a generation and those who foot the bill will be festering in airtight carbon sequestering graves.   

These extraordinary adjustment costs may all be necessary if unabated carbon emissions would have a catastrophic impact on the economy and other countries follow our lead.  Otherwise, it will be cheaper to clean up the environmental mess if or as it occurs. 

I also think that Chu mistakenly believes that there will be little political pushback, particularly if the administration's private estimates that the bill will cost the average household $1,761 a year are correct (Declan McCullagh. CBSNews, "Obama Admin: Cap And Trade Could Cost Families $1,761 A Year").  That is a price that will raise complaints from the dead let alone the living. 

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