Good debate.

I also agree with your overall economic analysis, particularly regarding minimum wage, my only argument was with your point that if government cared about the environment, they would have advocated for nuclear. Perhaps that’s true, perhaps that isn’t, you’re points about what should have happened in the 60s seem fair to me, but I don’t think that makes any difference in how we should move forward now. Up until the current administration there was never the environmental momentum necessary to do this, due to how expensive it is and how long it takes to permit. Now it’s too late for it to be our saving type of energy, because it will be at least 10 years before it will make a difference, at which point if we dont’ do SOMETHING, we will have reached what many scientists think is the tipping point of CO2 in the atmosphere. This is not to say that I don’t think its a decent way of going forward, I am a huge advocate of nuclear and it is clear that we need to encourage government to increase our nuclear supply now and heavily subsidize it if necessary. However, this cost will have another effect on the economy which was my only point with that statement – more government spending. Which I am all for, but many who read this blog are not.

Regarding your first point – I guess where we differ is that I don’t know if rising prices that are linked to CO2 would be so horrible. You’re right, all sectors are heavily linked to fossil fuel, because industry relies on it entirely, and this would have the initial effect of driving costs up in all sectors. It would be a burden at first, but soon after that, it would create a framework for changing how we do business, and incentivizing technological innovation. Those companies which can succeed in bringing their prices back down by burning less fossil fuels in production will be far more competitive. Knowing the industry, I have to imagine that in this climate, they will seek to do that fairly quickly. It would also quickly change the methods of distribution, which we know are very inefficient.

Regarding your third point: My point is that without some sort of initiative to drive energy demand down in the States, demand will continue to rise as it always has in the US, not that it will rise independent of whatever initiatives are passed. You’re right in saying that solar and wind can’t account for the growth. And nuclear will take too long. There just isn’t enough to sustain us at our current rate. So prices of oil and gas will also rise, yes, because demand will be high and supply will be limited, and we may become more efficient, but the key point is that this would be based on price and not linked to carbon. Without carbon in mind, when we wait for the free market to force people to adjust, due to prices as they currently are, our electricity supply would switch to coal – because its cheap and abundant. So cars may become more efficient and less CO2 intensive, but electricity generation would not.

We need some incentive to reduce our CO2 generation, and I just don’t think this will happen in the market. Cap and trade is such a measure that will drive down energy demand as it is linked to CO2. Perhaps it is too crippling on our economy to implement immediately, but we have to do something to drive down demand, and the reality is that most measures would be costly, because CO2 is so linked to our economy. Perhaps it should come in the form of efficiency guidelines, or changes to building codes, if cap and trade cannot be passed. However, I like cap and trade because it works within the existing market structure, and makes technological advance in production a benefit to industry, rather than a burden as it currently is.

I would advocate a reduction or elimination of the corporate income tax, which would bring more companies and more employment opportunities to the US. This would stimulate economic activity and increase personal income tax revenue. In order to meet the revenue gap created by the elimination of the corporate income tax, I would impose a national sales tax, Margaret Thatcher style that would then , in essence, impose a tax on money that is “under the table” or unreported. This move would probably increase gov’t revenue by 5-10%, as illegal activity that goes untaxed in this country is quite sizable.

Stephanie:

You make the argument that an increase in the price of fossil fuels is a good economic tool because it promotes substitution in energy forms. That is a very legitimate argument that I myself even supported (albeit indirectly) in my article, although we may disagree fundamentally about the implementation of nuclear energy

What I was trying to say was that nuclear energy is the most economic of alternative energies. Other forms of energy such as solar and wind bear high costs that are too burdensome to be implemented on a large scale. In order to make it cost effective, nuclear energy needs more technological effeciency. If the government had committed itself to a nuclear program in 1960 (when it should have), the cost effectiveness of nuclear would almost certainly be better today than it is. It could have even rivaled oil and gas, but there is no use speculating. Here is a parallel: Our modern day cars run more safely, fuel efficiently and at a lower cost than the cars produced 100 years ago. Why, you ask? Because of the technological progress made in the last century.

My main point is that we should probably have advocated nuclear energy on a national level years ago in order to have stimulated this type of technological development and that, even if started now, that industry would help not only our economy but also the environment. Take France as an example. France committed to nuclear energy a while back and now the cost of energy is 3.7 cents/ kWH, almost a 15% decrease in price from estimates included in the 2003 MIT study on the cost of nuclear energy. So, instead of having a similar feasible alternative to oil and gas, our leaders are imposing a tax now with “many negative effects” (your words) on a healthy industry in order to make up for their own collective folly.

Now, I support a clean environment just as much as the next person, but I do not like to have to pay for our government’s past mistakes, especially in a time period in which another tax and higher prices could be a potentially dangerous thing.

You also said some misleading things that I have to address:

1) “You’re right, cap and trade would raise the prices of commodities that were very carbon intensive to produce, and would likely raise the price of electricity that was produced using carbon intensive measures”
–You act like this tax will only effect the price of things that are directly produced by fossil fuels or contain fossil fuels. By doing that, you are just plain wrong. Can you think of any good or service that does not require electricity (which in the US is mainly produced by coal-fired power plants), oil, or natural gas? No (even bread in the supermarket has what you would call a “carbon footprint”). Thus, almost every part of the US economy would see an inflation in price due to the cap and trade tax, which, might I remind you was the point of my article. I wasn’t writing to show the benefits of nuclear energy.

2) “Thus the government is already heavily subsidizing all nuclear projects, and this would continue to be a burden. Where does that money come from if not taxes?.”
–What isn’t the government subsidizing? If clean energy is a priority for the government and this administration, it shouldn’t be difficult to cut a program here or there before technological efficiency allows nuclear energy enough profitability to overcome its exorbitant capital costs (most of which go to pay legal fees).

3) “Even if nuclear were advocated it wouldn’t make a difference on our CO2 emissions for at least 10 years. It’s completely impractical. And energy costs are going to continue to rise globally anyway because of growing international demand and dwindling supply, which will be another crippling effect to the economy. Cap and trade seeks to incentive innovation now, and allow for a competitive market in which those who seek to be environmentally friendly are rewarded.”
–You say that nuclear wouldn’t make a difference for 10 years, but what is the tax on oil and gas going to do with all this demand you say is pent up in the market? You say demand is huge and will keep growing, so that means oil and gas is price inelastic and therefore just as much CO2 will be dumped into the atmosphere post-tax as it was pre-tax! So what you said in this paragraph was utterly conflicting and showed you really do not understand the economics of the energy situation in America. And if you are going to claim yourself an environmentalist, then advocate nuclear, the carbon-neutral energy form, which you yourself will admit will have an impact. I might also say that the best form of incentive for substituting from oil and gas is the free market itself. Last year when gas hit $4-$5 a gallon, people substituted. If you want people to substitute, the next best thing is nuclear energy because it is carbon-neutral and it is cost effective. Cap and trade could inspire innovation and it couldinspire companies to be more environmentally friendly (probably won’t), but on thing will definitely happen: This tax will raise prices on all goods, which will certainly hamper any type of recovery.

“it will raise the price of commodities such as oil, gas, and coal as the tax is integrated into the price of those commodities, it will cause smaller firms in the energy industry to collapse as it eats away at their gross margins, and it will encourage companies to cut workforce to reduce expenses.”

You’re right, cap and trade would raise the prices of commodities that were very carbon intensive to produce, and would likely raise the price of electricity that was produced using carbon intensive measures, this is true, and while you launch this as a criticism, it is actually the point of cap and trade, with higher costs the hope is that the incentive for using less (when we already consume way more than we need) would drive down our environmental impact.

While it may have many of the negative effects you mention at first, the primary goal of cap and trade is to encourage innovation. Those who implement new technological measures to reduce emissions will benefit. There is currently no economic incentive for industry to be environmentally friendly, so it is a constant battle between environmental regulatory agencies and industry.

Regarding nuclear, last time I checked, Obama is pro-nuclear. However, it is not a quick fix like you propose. Nuclear is not a cost effective method of electricity generation. THe government has to insure it for millions of dollars for it to go through – no industry will pay for it due to risk analysis. Thus the government is already heavily subsidizing all nuclear projects, and this would continue to be a burden. Where does that money come from if not taxes? Beyond that, nuclear projects take at least 10 years to permit and go through huge legal cases because most often local groups are opposed to their construction and sue. Politicians would have no control over this.

Even if nuclear were advocated it wouldn’t make a difference on our CO2 emissions for at least 10 years. It’s completely impractical. And energy costs are going to continue to rise globally anyway because of growing international demand and dwindling supply, which will be another crippling effect to the economy. Cap and trade seeks to incentive innovation now, and allow for a competitive market in which those who seek to be environmentally friendly are rewarded.

While I thoroughly agree with you, however, I must ask what your solution to the recession would be. What sort of policies would you prefer to have been implemented?

I agree with you on the inflation issue, but that is not a concern as of right now. The Fed will most likely have to create another recession in about 18 months to cure this problem, which will piss off a lot of people.

Spending trillions of dollars into a deficit must certainly be done carefully. It has not been and the American people will suffer–and that is what is really a shame.