Cap and Trade

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Built out of the Global Warming [1] or Climate Change[2] political ideology, Cap and Trade or Emission(s) Trading [3] has been promoted by Al Gore [4] and the EPA [5] by its efforts to declare Carbon Dioxide [6]-the product of complete combustion and your exhaled breath, as well as what is taken in by plants and trees and then turned to Oxygen-a hazardous substance. The plan is to make energy, specifically coal and natural gas energy, prohibitively expensive so people will be forced to use less or none.

What Is Cap and Trade?

Cap and trade is a system by which the government sets an arbitrary level, or “cap”, on the amount of carbon that companies are allowed to emit. Companies must then purchase credits from the government that represent the right to emit a specific amount. Companies that wish to increase their emissions must buy credits (the “trade”) from those who produce less.

Most energy production is from burning coal and natural gas.This produces a gas called carbon dioxide from the complete combustion of carbon with oxygen. Any utilities using coal or natural gas for electricity will be required by law to purchase "carbon credits" from the Federal Government to offset the carbon dioxide that is emitted from the combustion of carbon with oxygen when burned.

In an effort to maintain United State’s competitiveness and productivity, there is not a current cap and trade system in effect. Every cap and trade system proposed in the U.S. Congress has been rejected by not only members, but the general public as well.

The Price of Cap and Trade

According to a study[7] by the Heritage Foundation, Kentucky will suffer the following losses and increases in expenses in 2012 as a result of Cap and Tax:

  • A decline in Gross State Product of - $1,811,910,000
  • Total personal income loss of - $2,313,260,00
  • Non-Farm job losses of - 21,942
  • An increse in electricity prices from 2012-2035 of $567.51 per household.
  • An increse in gas prices from 2012-2035 of $0.65 per gallon.

The Waxman-Markey Cap and Trade Tax Bill

On June 26, 2009, the House of Representatives narrowly passed the Waxman-Markey Cap and Trade Tax Bill[8] (aka the American Clean Energy and Security Act, ACES, H.R. 2454) which is intended to combat global warming.

This bill sets the goal of decreasing the CO2 emissions rate 83% below the 2005 level by 2050. The bill seeks to lower CO2 emissions through several provisions that are riddled with tax increases and costly federal mandates. Below are just four of those taxes and mandates:

  • Imposes a tax on producers' carbon emission
  • A mandate requiring electric providers to derive a certain amount of their production from renewable resources
  • A mandated increase of Corporate Average Fuel Economy (CAFE) for vehicles
  • A mandate requiring all manufactured homes, appliances, and lighting to be "energy efficient"

From 2012-2015, the annual percentage of renewable resources providers must use will be 6% to 8.5%, increasing to 25% by 2039. The high cost of this mandate will be passed on to their customers through dramatically raising energy prices.

CAFE will cost American drivers more than $6.71 billion between 2010 and 2011. CAFE forces automakers to produce smaller and lighter cars. The National Highway Traffic Safety Administration, estimated that these lighter cares will increase American traffic fatalities by almost 40,000.

Obama's Proposal

The FY 2010 budget proposal will implement a cap and trade system on all American businesses. Americans for Tax Reform's analysis of this budget[9] shows that the cap and trade program will result in a tax increase of $646 billion dollars over 10 years for businesses and will increase taxes by $3,100 on every American family.

While this sharp increase in expense and tax will hit all manufacturing industries hard at a time when they can least afford it, foreign operations where they are not taxing carbon emmissions will inevitably ramp up energy production to fulfill demand for the forced reduction in energy demand in the United States. Foreign countries are less likely, or do not, regulate industry and manufacturing with any pollution rules as the United States does with the EPA.

Effects of Cap and Trade on Kentucky

Cap and Trade would have a devastating effect on Kentucky economy. It wouldn't result in a world wide carbon reduction. The cap and trade program would put thousands of Kentuckians out of work, and would put thousands of Kentucky's highest paid union and engineering jobs at risk. The coal mines, power industry, chemical manufacturers, petroleum refineries, steel mines, and auto manufacturers would be put in an Obama made economic crisis.[10].These businesses would end up closing, and would stop expanding. Many coal plants would go over seas where less efficient and less regulated overseas coal plants would produce our products and increase worldwide carbon emissions. Energy cost will increase as will prices. [1]

Kentucky Coal Industry

Over 95 percent of Kentucky's electricity comes from coal generated power plants. Kentucky is third in the nation in coal production, generating over $3 billion in sales and hundreds of millions in tax revenue. The Kentucky coal industry employs more than 15,000 people[2].

The "cap and trade" provision will not only devastate the coalfield communities in eastern and western Kentucky, it will destroy large segments of Kentucky's manufacturing base, particularly energy intensive industries like steel and aluminum.

Kentucky currently produces 30 percent of our nation's steel and aluminum. Together, these industries employ thousands of Kentuckians in communities like Ashland, Russellville, Sebree, Hawesville and Lewisport. The energy tax in the "cap and trade" provision will significantly increase the cost of producing steel and aluminum, putting our companies at a severe competitive disadvantage compared to their competitors in other countries.

High-end estimates suggest that Cap and Trade will cost the average Kentuckian an extra $1000 a year on their utility bills. This increase in cost may come to Kentuckians when they are already boiling over with the consequences of a weak economy and are least able to condone an attack on the Coal industry, the state's backbone.

While a Cap and Trade battle in Congress may or may not materialize; the EPA has reported that they may consider going around Congress via regulatory statute in the Clean Air Act.

The Economic Repercussions

The Pike County chamber of commerce says cap and trade could result in horrible economic repercussions. This law would produce a limit on how much carbon dioxide companies can emit and carbon dioxide that is over the cap would require a permit. These companies would have to buy credits from companies that create less carbon then them.[11]. The Heritage Foundation says it will cost the economy $161 billion in 2020, which is $1,870 per family. These firms would have to create less coal which means higher prices for consumers. In KY 93% of the states electricity comes from coal. Kentucky is third among states in coal production. It produces $3 billion in sales and hundreds of million in tax revenue for Kentucky. The Kentucky Coal industry gives more than 11,000 of our citizens jobs and creates 30% of nations steel and aluminum. Legislators in Kentucky say Obama's cap and trade bill would increase electric rates, result in mass layoffs in Kentucky coal and manufacturing[3]. Proponents of cap and trade admit that jobs in the coal industry would decline, but they say jobs in the alternative energy industry will pick up those laid off. The problem is there aren't really alternative energy sectors that are sustainable which means we don't have a permanent alternative energy industry yet. This technology is 10 to 25 years down the road and won't help Kentuckians now.

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The Cost to Kentucky

In the future dumping 20.6 million tons of carbon dioxide a year, which is how much Duke dumped in 2008, could cost them as much as $600 million a year. “Depending on how much Congress decides to charge for every ton of CO2 released, electricity bills could rise anywhere from 20 percent to 50 percent, according to Duke’s estimates”. The states in the Midwest are going to be hardest hit by the Cap and trade bill while states on the East and West coast will benefit financially from this bill, and won't pay much of the cost, since those states don't use much coal for electricity or heat.[12] “According to the Energy Information Administration, 94 percent of the electricity generated in the Hoosier state in 2007 came from coal” 93% of electricity in Kentucky comes from coal. Chase Kelley, spokeswoman for Duke Energy Company says, the price of releasing a ton of carbon dioxide range from $15 a ton to $60 a ton. Most of the cost will end up being passed on to the consumer and result in loss of jobs in the coal, manufacturing, energy, and steal industries. “Later, utilities will try to avoid paying more for emissions by installing equipment meant to capture and store CO2. Like generation costs, the cost of such capital improvements are usually transferred to energy bills”. China and India are the developing Countries whom are quickly catching up to the United States economically and their demeanor shows they aren't interested in curbing their share of carbon emissions, which means since they are going to become the biggest polluters of carbon dioxide, when we cap our emissions it won't help stop global warming, but it will cripple us economically. A refinery manager for Countrymark named, Matt Smorch, doesn't welcome the Cap and Trade bill, and believes the smaller energy companies will feel the brunt of the legislation, unlike the big energy corporations, whom have the huge profit margins needed to pad themselves against higher costs.“It would be very hard to compete against the ExxonMobils of the world and the large oil companies,” said Mr. Smorch.

See Also

Kentucky congressmen need a ‘thinking cap,’ not a ‘tax and cap.’ Read Jim Waters' guest column in the Lexington Herald-Leader on how energy legislation proposed in Washington would threaten the economic viability of Kentucky's coal mines.

"Why an Emissions Trading Scheme (ETS) is not necessary," a brief summary compiled by Leon Ashby, president of "The Climate Skeptics"[4] and recipient of the Centenary Medal for the environment.


  1. Global warming on Wikipedia
  2. Global change on Wikipedia
  3. Cap and Trade on Wikipedia
  4. Al Gore on Wikipedia
  5. Environmental Protection Agency on Wikipedia
  6. Carbon dioxide
  7. Energy and Environment study - Heritage Foundation
  8. The American Clean Energy and Security Act of 2009
  9. Americans for Tax Reform analysis
  10. Cap and trade would harm KY economy Herald Dispatch
  11. Pike chamber event to focus on cap and trade Williamson Daily News
  12. Cap and Trade Courier Press

[5]Goad J., 2009, "Pike Chamber Event to Focus on Cap and Trade",Williamson Daily News.

[6] Bennet C., 2009,"Cap and Trade would Harm Kentucky Economy", Herald-Dispatch.

[7] Shaw D., 2009,"Cap-and-Trade has Shaky Support in Midwest".