Policy Documents

Free markets can best address environmental problems

Allyn Milojevich –
October 18, 2010

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