As discussed in this Wall Street Journal editorial, the cap-and-trade discussion is leading to perverse incentives in fast forward. What usually happens is that we impose some cost on American businesses through regulation. Then, only after years of progression, do we realize that such costs reduce the cost competitiveness of American firms relative to foreign producers. We may then use trade restrictions or just let that industry go.
Now, we have cap-and-trade. An earlier editorial in the WSJ correctly points out that cap-and-trade amounts to a tax. Now, before we even have cap-and-trade implemented, Energy Secretary Steven Chu is calling for tariffs and other trade barriers to be used as weapons to force countries like China and India to cut CO2 emissions. This will, of course, endear us to our trading partners.
Certainly, one can make an argument that trade barriers that equalize costs of production may be desirable in some limited cases. But, its the hypocrisy of the Obama Administration that is most egregious here. We are told on the one hand that cap-and-trade is “good for American businesses” and will result in “jobs that cannot be outsourced.” Well, if that is the case, why do you need protectionist tariffs??