Over the past year, President Obama has sought to take on yet another sector of the economy: energy. The overreaching goal of what has become known as cap-and-trade legislation is to place a price on carbon, making it easier for government to tax and regulate emissions.
Facing a tough election cycle and growing public opposition to more regulation and taxation, Senate Majority Leader Harry Reid recently abandoned the grand energy scheme in favor of a less comprehensive bill. Although cap-and-trade has lost its vigor, the watered-down plan poses its own threats.
Reid’s new bill increases the oil spill liability faced by companies from $75 million to $10 billion and imposes new safety requirements on oil rigs. It also provides homeowners with a financial “incentive” to adorn their homes with energy efficient products.
Lifting the economic cap on oil spill liability is inherently free market, though in this case it amounts to nothing more than shallow political retaliation. Right now, companies like BP are only on the hook for $75 million regardless of the damage they cause, leaving taxpayers to foot the rest of the bill in catastrophic situations. If BP and other companies cause severe economic damage, taxpayers should not be forced to bail them out. That said, the measure will likely force out smaller oil companies unable to afford insurance to cover their vastly expanded liability. Some experts estimate this could lead to 289,000 lost jobs over the next five years.
The new drilling regulations will undoubtedly drive up oil prices by entangling companies in unnecessary red tape. It could also propel oil companies to relocate their rigs elsewhere around the world, making the U.S. even more dependent on foreign oil.
Offering homeowners incentives to buy energy efficient products resembles the recently expired first-time homebuyer tax credit. To recover from a housing bubble prompted by lenders giving loans to people who had no business buying homes, the government spent billions of dollars encouraging home ownership by people, many of whom still had no business buying homes.
Government incentives alter consumer demand, almost always to those consumers’ detriment. They also favor certain manufacturers over others, inhibiting competition, the cornerstone of any free market.
Despite the new scaled-back approach, cap-and-trade might not be gone for good. The Environmental Protection Agency has asserted its authority to regulate carbon emissions even without official congressional action.
The new plan also doesn’t mean that Reid & Co. have forever abandoned more comprehensive energy legislation. When Democrats lose their unchecked command of Congress in November (they’re likely to lose the House and will almost certainly fail to retain enough Senate seats to overcome a filibuster), they will be determined to spend the waning days of the session ramming through legislation.
Many predict that Democrats will reserve this lame duck session for a full-scale assault on the energy industry. Between Democrats who lived to fight another day and those who were just handed the pink slip, congressional leaders may be able to muster the votes they currently lack to pass cap-and-trade before the new Congress takes over.
Nonetheless, cap-and-trade’s election-induced coma is at least a temporary victory for those interested in less government. It’s not, as some progressives shriek, a sign that big business has flexed its muscle. Recall that the very target of Reid’s new bill — BP — supported cap-and-trade, as did other energy companies. Of course, their incentive was not to “be green,” but rather to hamstring their chief rival, the coal industry, as well as to benefit from massive government subsidies.
If anything, the fact that cap-and-trade has been placed on life support is a sign that collusion between big business and big government doesn’t always prevail over the will of the American people.