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Cap & Trade’s Magic Trick


Cap and Tax relies on the same trick.

I’m writing this because I hear a lot about how these concepts work, but there is one element of these strategies that I have not seen get any attention, and I’d like to bring some to it now.

Innovation. This is the lynchpin element that makes it supposedly alright to cap and “make energy prices necessarily skyrocket”. Innovation is the advent that must happen to bring prices back down. Let’s talk about innovation:

My micro-economics teacher from years ago said that it takes about four years for the average Research and Development (RD) team to modify an existing technology in a theoretical way and bring it to market. Now, let’s talk about RD in general. In order for a large company or Joe the Plumber to want to engage in RD, they need extra income. RD is nothing more than a hope or a wish until the day it is known that something can come to the market. This means it is potentially a waste of money. A really BIG waste of money because the first try is definitely going to fail, and each try after that will likely fail until some time down the road; but they keep trying because if they are the first to come up with this magical item, then they will make magnitudes more money than they spent to get the technology.

Now, with that in mind: we are in a world-wide recession. That means that times are hard for all companies and even Joe. When times get hard, extra money dries up fast – and the first expense to go is RD. Next are incidental expenses like non-compulsory travel and new chairs for the office. After that are wages – in the form of layoffs. If things still don’t perk up, then borrowing grows, followed by bankruptcy. Guess which phase the global economy is at? If you need a hint, check out any of the PIIGS posts.

Therefore, the world does not have any extra money that it can spend on innovation – especially on something as tricky as “eco friendly power”. This is a problem we’ve been wrestling with since the 1970s and we still don’t have a good answer. Remember the four years above? It’s been ten times that many years and billions of dollars and we still don’t have a good alternative to fossil fuels.

There are no rabbits in the hat. When you hear a politician say “innovation will happen”, you should instantly write that politician off as a sell out and/or ignorant. We are not in the type of market atmosphere that can support RD, and it simply won’t happen right now. If we do anything to make energy more expensive in the hope that some magical innovation will happen to make it cheaper again, then we are going to be really sad, angry and poor, while at the same time ensuring that we stay that way.

Don’t let Cap and Trade in your neighborhood!

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Categories: Climate Change
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