The Business of Global Warming

Soon, fast-talking Senators will take up the Kerry-Boxer bill to supposedly limit global warming. Meanwhile, corporate America is doing a global warming kabuki dance.

Over the past several weeks, several high-profile companies have left the U.S. Chamber of Commerce. Liberals and environmentalists hope that will make it easier for the Senate to pass a cap-and-trade bill. After all, these defections happened because of the Chamber’s blinkered position on global warming. Right?

Not entirely. As National Public Radio (no conservative outlet) reported last week, “some of the defections may reflect these companies’ own business interests. Utilities that rely heavily on nuclear power, or that have made big investments in alternative energy, could profit from a cap-and-trade system.” NPR added that other companies support legislation “because it’s part of their marketing strategy.”

Many companies, including utilities, have built their business models on the assumption that Congress or the Environmental Protection Agency (EPA) will place a cap on carbon emissions. Such caps would wreak havoc on the American economy as a whole. As numerous Heritage Foundation analyses suggest, there would be fewer jobs, less economic growth, less consumption and higher energy costs.

As a candidate, President Obama admitted that under a cap-and-trade plan, “electricity rates will necessary skyrocket.” How much? Heritage estimates electricity prices could increase by 90 percent. Bad for customers, but good for utilities that have built their business models on the assumption that energy prices will be dramatically higher in the future because of cap-and-trade. Absent such a plan, many of their investments in renewable energy are likely to lose money.

Americans should view this as an example of how government interferes with rational decision-making, not as an opportunity to invoke populist rhetoric against profits and corporations. Profits are inherently good. They encourage companies to be more efficient and innovative, both of which are beneficial to consumers. Problems arise when the government begins to alter the incentives, create fake markets and heaping unnecessary regulations on production.

It’s no surprise that some companies would build their business models to adapt to and profit from a future regulatory scheme. The problem is less with the corporations and more with the federal government, which is engineering perverse incentives. Companies are also positioning themselves for a piece of the carbon allowance pie, which Heritage estimates could be as large as $5.7 trillion between 2012 and 2035. Snagging even a small portion of that money could be very profitable.

Taking advantage of bad government policy is only half the story in corporate America’s global warming debate. Splits are also occurring at the U.S. Climate Action Partnership, a group formed to advocate for a cap-and-trade regime. Last week, half their members refused to sign a recent newspaper ad urging the Senate to pass a cap on carbon emissions this year.

Ironically, none of this is likely to change the Senate’s upcoming debate over the Kerry-Boxer cap-and-trade legislation. While businesses are jockeying for position in the debate over global warming, the economic consequences of cap-and-trade would hurt everyone.

Policymakers and Americans understand we need to focus on the true costs of rationing carbon-based energy: 1.9 million fewer jobs in 2012, $9.4 trillion in lost economic growth by 2030 and a 90 percent increase in the price of electricity by 2030. If you favor those outcomes, by all means support this bill.