Cap and Trade Catastrophe

The cautionary tales arising from European-style progressivism just got another jolt, if you’ll pardon the expression, of reality last week. On Wednesday, British utility giant Scottish Electric announced that the gas and electricity bills of five million customers would go up by a whopping 19 and 10 percent respectively, beginning August first. Six other major power providers in Britain are expected to follow suit. The move follows a 30 percent increase in the wholesale costs of energy since last November, and will push average annual household costs for fuel as high as $2050, the highest level ever recorded. Yet rising wholesale costs are only half the story.

“Wholesale prices for gas and electricity have increased significantly since the end of last year and continuing unrest in global energy markets means future prices are volatile,” said Raymond Jack, Scottish Power’s chief executive. ”We understand times are difficult for many people, and we have done what we can to absorb these additional costs for as long as possible to minimize the impact on our customers.”

Mr. Jack then said something that should sound distressingly familiar to Americans. “The rising burden of non-energy costs faced by Britain’s energy suppliers–including the cost of meeting government environmental and social programs and the cost of distributing electricity on the national grid–has also placed further upward pressure on energy bills.”

What Mr. Jack is referring to is government regulations which essentially decide who the “winners” and “losers” are in the energy game. These regulations are designed to intentionally drive up prices, and then give the extra money to the owners of renewable power generators. One of these regulations is called a Feed-in-Tariff (FIT) in which an inflated price is paid to the owners of massive wind farms or those who put rooftop solar panels on their houses. This cost is then added onto everyone’s electric bills. Since those who can afford wind farms or solar panels tend to be people who are better off economically, the net result is that poorer Brits are subsidizing the power consumption of those who are better off.

Another of these regulations is the Renewables Obligation, where “loser” power suppliers are compelled to show the government Renewables Obligation Certificates (ROCs) which represent a percentage of the electricity they produce each year, measured in mega-watt hours. Where do the losers get the ROCs? The government issues them to the “winning” owners of any power plants it defines as producing “renewable” energy. The winners then turn around and sell them to the losers as a means of offsetting “buy out fees,” (read: fines) the losers incur for producing “dirty” power. Since government has escalated the percentage of electricity produced by loser companies that must be covered by the ROCs – currently 11 percent, expected to reach 15 percent in 2015, where it will remain until 2037 – it forces energy prices up, irrespective of free market forces.

Like almost any company faced with a price increase, those increased costs are then passed on to the customer. Even worse, such an arrangement provides no incentive for renewable power entities to cover their costs by actually selling electricity. They are more like government-subsidized banks offering environmental “dispensation” to the less fortunate, non-renewable power providers. In effect, the government is creating a middleman in the power supply chain out of thin air.

If this scheme sounds distressingly familiar, it’s because the Obama administration has made “cap and trade” one of the prime movers in its attempt to “green” America. And in 2008, then-candidate Obama made no pretense of what would occur as a result. “Under my plan of a cap and trade system, electricity rates would necessarily skyrocket…because I’m capping greenhouse gases…[W]hatever the [energy producing] industry was, they would have to retro-fit their operations. That would cost money. They will pass that money on to consumers,“ Mr.Obama told the San Francisco Chronicle.

Cap and trade was killed, despite Democrat majorities in both houses of Congress, when the Senate refused in 2010 to take up the bill narrowly passed in the House in June of 2009. Why did the scheme die? ”The short answer is that it was done in by the weak economy, the Wall Street meltdown, determined industry opposition and its own complexity,“ offered the NY Times in March of 2010.

Nonsense. The bill was done in by a Democratic Party coming to grips with the fact that ObamaCare, which took the exact same command-and-control approach with healthcare that cap and trade does with energy, was an unmitigated disaster. After the 2010 election, which put Republicans in control of the House, cap and trade could no longer be implemented legislatively.

Yet as this administration continues to demonstrate, a lack of support from the legislative branch of the federal government is nothing more than a minor impediment. “What has been stated from the White House is that the president’s advisers would advise him to veto any legislation that passed that would take away the EPA’s greenhouse gas authority. Nothing has changed,” said EPA head Lisa Jackson to reporters last February. This was her response to congressional threats aimed at thwarting her intention to impose new regulations without legislators’ input. The House of Representatives passed the “Energy Tax Prevention Act of 2011“ prohibiting the EPA from regulating greenhouse gases under the Clean Air Act by a 255-172 margin. Yet the bill failed in the Senate, where a 50-50 vote fell short of the two-thirds needed to over-ride a certain veto by the president.

Thus, the power of the EPA and its intentions to implement a broad scope of measures designed to combat global warming remains largely undiminished. Where could this be leading? Bill White from the Office of the Federal Coordinator for the Alaska Natural Gas Transportation Project explains. ”Federal environmental regulators have proposed four sets of rules that together act as kind of a quadruple whammy on the coal-fired power generation industry…they likely would cost the industry billions and pull the plug on many gigawatts of coal-fired electricity generators,” said White.

Mr. White’s assessment was echoed by Bruce Braine, vice president for strategic policy analysis with American Electric Power company (AEP), who noted that, while the proposed rules would go into effect in four years, “It can take five years to install a major piece of pollution control equipment.” As a result, he predicted his company would then be forced to buy power from other providers, driving customer rates up “20 to 30 percent.”

In fact, last Thursday the 9th, White’s prediction became reality. American Electric Power announced it was closing five coal-powered plants “to comply with a series of pending Environmental Protection Agency regulations.” 6000 megawatts of coal-fired power generation will be retired, and $6 billion to $8 billion in capital investments will be spent to upgrade the facilities. AEP calculates the required changes will increase electrical bills 10 to 35 percent and result in 600 lost jobs.

The EPA’s cost calculations for the four new regulations combined were $16.2 billion, and an average increase of 7.5 percent in electricity costs for all Americans. Yet as AEP has demonstrated, the EPA’s estimates may be off substantially, and given this administration’s track record of manipulating data for its own ends, one would be wise to remain skeptical. AEP CEO Michael Morris certainly is. “We support regulations that achieve long-term environmental benefits while protecting customers, the economy and the reliability of the electric grid, but the cumulative impacts of the EPA’s current regulatory path have been vastly underestimated, particularly in Midwest states dependent on coal to fuel their economies,” he said.

Reinforcing that skepticism is the president himself during the same 2008 interview with the San Francisco Chronicle. Despite the reality that coal-generated electricity accounts for half of the electricity produced in the country, Mr. Obama was disdainful regarding the impact of EPA regulations on America’s primary energy providers. ”So if somebody wants to build a coal-powered plant, they can; it’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted,” he said.

Since 2008, nothing, ideologically speaking, has changed. This president and his administration remain committed to aligning the country with a progressive agenda, even as economic data continue pointing to the futility of command-and-control economic policies, coupled with a “save the planet” mentality based on dubious scientific evidence. In Britain, the Institute of Fiscal Studies (IFS) points out that many of the country’s poor will be faced with a choice between “heating and eating” next winter. They’ve already instituted the same cap and trade plans the Obama administration intends to inflict on America – by fiat if necessary. Considering the current trajectory of food and fuel prices, one can only wonder if Americans are ready for another shock to the system similar to the one Great Britain will shortly endure.

Arnold Ahlert is a contributing writer to the conservative website JewishWorldReview.com.