I came across the group ‘The Cap Solution‘ through a few different avenues, energy industry related research, at the public library as an advertisement in the front hall, and at the local farmers market on a bulletin board. The Cap Solution is consortium of the Environmental Defense Fund, the Blue/Green Alliance, and the United Steel Workers.

Here’s what they stand for:

The cap solution in a nutshell

Capping carbon pollution encourages the growth of renewable energy and energy-efficient industries. It brings customers to these businesses, which in turn will create good jobs and help revitalize American towns.

They are correct that it will encourage the growth of renewable energy as a GHG cap will increase the costs of traditional generation (e.g., coal and natural gas). I’m not sure if it will create jobs, as that assumes the jobs lost from the coal and natrual gas generation sector will be more than replaced by jobs associated with ‘green energy’. Their logic does fully fall apart with the comment that a GHG cap will, “revitalize American towns.”

Let’s explore this logic a bit further:

New jobs americans can do tomorrow

Take the wind turbine. It’s a machine. Americans are good at machines. A typical wind turbine has 8,000 parts and is made of 250 tons of steel. Somebody’s got to make that steel, fabricate those parts, assemble those parts, deliver the assembled turbine to a wind farm, erect the turbine and manage the wind farm. That’s a lot of jobs right in the American workers’ sweet spot. And this is just one example. A Carbon Cap will create demand for energy efficient windows, LED lighting, ball bearings for turbines and thousands of other products.

So here is where I strongly disagree with their logic. If we implement a GHG cap we increase the price of manufacturing in the US, particularly the cost of manufacturing energy intensive products. Steel is energy intensive. So while we increase the costs of doing business and producing steel and India and China do not increase the costs, they become more competitive in the market and thus will be most likely the producers of the new wind turbines. In fact this article, claims that China will be the biggest producer of wind turbines in 2009. So why, in particular, is the United Steelworkers supporting this legislation. Well as an economist I tend to think of incentives, what is it that the United Steelworkers like, what reward would they possibly seek…protectionism.

This can be seen by the Cap Solution’s simple sentence:

And by starting now, we’ll make sure these products are made here and exported all over the world. Instead of becoming more products we have to import.

In fact the United Steelworkers couldn’t get any trade complaints passed through the Bush administration so their hoping for some traction with Obama (particular since he pledged to increase trade enforcement). They are currently trying to get ‘trade enforcement’ considerations by Obama on imported Chinese tires (see article).

Its unfortunate that the environmental leadership in our country can’t make the connection between increased costs of production and the health of our economy, and how the health of our economy allows us to purchase environmental services (e.g., pollution control and preservation). I also find that most people forget that the reason we get to even consider worrying about GHG is that we have a high standard of living. I fear that our ability to worry about GHG, our high standard of living, will erode as we start to turn our worries into policies. Policies that increase the costs of doing business in the U.S., while not simultaneously increasing the cost of doing business in other countries, putting all of us at a competitive disadvantage.

This group, waiting in line for free food for unemployed, aren’t waiting in line to volunteer for a non-profit, or learn about environmental degradation, they’re unemployed and employment and security definitely come before environmental protection.