I attended the Texas Alliance of Petroleum Producers’ mid-year 2009 press conference at the Petroleum Club in Houston on July 21. As usual, it was an interesting event. Some of the presentations, not surprisingly, focused on the PetroIndex, which the organization developed to provide insight on how E&P activity affects the Texas economy (which at present is not positive). Another bit of information disseminated by the organization addresses the reasons cap and trade will deliver economic pain to consumers without providing the environmental gain those who endorse the measure are touting. I thought it would be interesting for our readers to see these reasons: 1. Increased costs to consumers and energy producers will be unavoidable. The Environmental Protection Agency predicts gross domestic production reduction of US $1 trillion to $2.9 trillion by 2050. 2. There will be increased volatility in energy prices. Energy demand is inelastic, so that even small changes in demand relative to supply can result in sharp price movement. 3. HR 2454 discriminates against natural gas. 4. US refineries will be at a competitive disadvantage with foreign refiners. 5. The US will need to import more foreign oil. 6. Raising the price of energy during a recession will damage US economy further. 7. The goal to reduce greenhouse gas by 80% by 2050 is impossible to meet. Carbon emission has not been that low since 1910 when the US population was 92 million. 8. Food prices will rise. More farmers will plant corn to meet ethanol demand, replacing wheat and soybeans. 9. It is imperative that the top 15 carbon-producing countries participate. Allowing competing countries to operate in an economy without cap and trade restrictions will give them a competitive advantage. 10. Protection against fraud and cheating will be expensive. Just as the Commodities Futures Trading Commission and others must oversee trading on the futures markets, some agency will have to be responsible for overseeing the trading of emission allowances. 11. Claims of increase in jobs are misplaced. 12. Big Government gets bigger. Many new organizations would be created to protect against fraud and cheating. 13. Big business gains another advantage over small business. 14. No free market. Markets are set by the government through allocation of emissions allowances. 15. Economic pain without environmental gain. When the President and Congress mandated huge increases in ethanol usage, they failed to realize the full impact on grain prices and food supplies. Cap-and-trade programs will have enormous impact throughout the economies of the world. I wonder if this message is being heard in Washington……
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