Posted by
Mr. Right(wing) on Thursday, March 05, 2009 7:37:20 PM
On May 14, 2008, then-candidate Barack Obama made a campaign stop at a Chrysler stamping plant in Michigan. His theme: fighting to retain America's manufacturing jobs. Said the candidate:
We'll revive and strengthen all of American manufacturing. These have been a disastrous eight years for our manufacturers. We've lost nearly 4 million good-paying jobs, including hundreds of thousands in Michigan, and more than 36,000 manufacturers have closed their doors. We can't afford to continue down this path. Manufacturing supports one in six American jobs - jobs that pay more and offer better benefits than other jobs - and we all have a stake in saving them.
That was then. But now as President, Mr. Obama intends to implement policies that will have the opposite effect. For this will be the unfortunate result of implementing the so-called "market-based cap on carbon pollution" that the President called for in his first Presidential address to both houses of Congress.
How so?
Well it helps to understand how manufacturing is done. Generally speaking, in the United States, there are very few, if any, manufacturing facilities that do not use significant automation. Gone are the days where an assembly line consisted of a row of craftsmen assembling parts using hand tools. Today's manufacturing worker spends his or her days working in huge, largely mechanized facilities, in many cases essentially overseeing the automated processes that crank out everything from toasters to automobiles. And what do these facilities all have in common?
Power. They use lots and lots of power. Power that is today supplied largely by electricity generated from coal and/or natural gas fired generators.
And the President is determined to make that power cost a whole lot more.
We already massively subsidize solar and wind power, and yet only 1.1 % of all of the electricity produced over the past twelve months came from solar and wind generators. The main reason for this is cost. Electricity can be produced at an average cost of $.03 per kilowatt/hour using conventional coal and natural gas production methods. Producing electricity from renewables like solar and wind, however, costs on average $0.15 per kilowatt/hour. In other words, "renewable" energy costs five times as much as energy produced from hydrocarbons.
Now, most American's care about the environment a great deal. But few of us can afford to pay five times as much to heat our homes in the winter, or to drive to work five times a week. So we buy our fuel as cheaply as we can.
That is where "cap and trade" comes in. By charging massive taxes on carbon dioxide emissions, Obama means to make renewable energy cost the same as carbon-based fuels. But not by lowering costs on renewables; Obama wants to do it by raising the prices on everything else. And that spells disaster for consumers.
We find that a mitigation path consistent with Lieberman-Warner's provisions is equivalent to a permanent tax increase for the average American household. This increase is projected to amount to an additional $1100 in taxes in 2008. Moreover, this cap-and-trade "tax" increases over time in real terms from about $1400 to $2000 during 2015-2030 and approximately $2000 to $3000 in 2030-2050. The de facto tax increase becomes quite significant when one considers the average American household spends about $2500 on food annually....
Cap-and-trade will burden households with higher gasoline prices. Table 8 shows the percent difference between the baseline gasoline price and the cap-and-trade adjusted price. All models and scenarios demonstrate that Lieberman-Warner will increase the price of gasoline above the reference scenario price but with large amounts of variation. The CRA predicts that gas prices rise 145% above the reference scenario in 2015. ...
The assumptions driving the price of carbon allowances also affect employment. A higher predicted carbon allowance price gives producers a tighter margin and they are forced to shed jobs to maintain profit levels. The estimates of job losses range from hundreds of thousands to millions.
Now, back to manufacturing. Why will this positively kill manufacturing in the U.S.? Well, when someone is looking to open up a factory somewhere, there are basically three costs they will need to consider: capital equipment, labor, and operating costs. In broad terms, equipment costs roughly the same no matter where you put it. So that factor is largely a wash. And the U.S. is already at a comparative disadvantage relative to other countries, in that wages in the U.S. are the highest in the world.
That leaves operating costs. For companies operating lots of machinery, those largely take the form of energy bills. If the cost to power the machinery on an assembly line multiplies, as it will under a cap and trade regime, it will become far less attractive to open a new factory, or maintain existing ones, here in the U.S.
We already see in the U.S. the results of such disincentives.
With some of the highest electricity prices in the country, California and New York have hemorrhaged manufacturing jobs. California-based Google houses its massive server farms in states like North Carolina and Oregon, which have lower electricity costs.
Already the U.S. is losing manufacturing jobs at an alarming rate. As Obama himself noted: "Since 2000, America has lost 3.7 million manufacturing jobs, a 21 percent decline." Frankly, there isn't a lot we can do about it. There are hundreds of thousands of Chinese, Singaporean, Malaysian and other workers who can and will run machinery for a mere fraction of what a U.S. worker earns. That disadvantage alone will lead to a continued exodus of manufacturing jobs.
But if we now heap on a colossal added disadvantage relative to our Chinese and other Asian competitors, all of whom reject the notion of taxing carbon, we will create yet another incentive for manufacturing companies to make their wares, and take their jobs, elsewhere.
In a bitter irony, manufacturing remains one of the labor unions' last bastions. Is this the change that those hard-working Americans were looking for when they voted in overwhelming numbers for this President?