Posted by Joseph Y. Calhoun, III

President Obama cited California as an example of how we can reduce energy consumption and urged passage of the cap and trade bill in the Senate:

While promoting his new cap-and-trade energy tax bill, which passed the U.S. House last week, President Obama revealed in a White House address on Monday his model for the nation’s economy - California. “In the late 1970s, the state of California enacted tougher energy-efficiency policies,” Obama said, noting that the state and its residents use less energy today per capita than the national average. “Think about that,” he said, “California producing jobs, their economy keeping pace with the rest of the country and yet they’ve been able to maintain their energy usage in a much lower level than the rest of the country.”

Considering the current state of California’s economy, I would think long and hard about emulating them in any way.

Between 2000 and 2007, before the current recession, the state shed nearly 21 percent of its manufacturing jobs, driving down its industrial electrical consumption by 21 percent. California’s industrial users pay electric rates twice as high as their Midwestern counterparts - which helps explain why so much heavy industry has fled the state. In addition to alienating its industry, California has also curbed energy use through exorbitant residential electric rates (50 percent higher than the national average) and massive net out-migration. Between 2005 and 2007, 2.14 million Californians moved to other states, while only 1.44 million people from elsewhere moved to the Golden State, according to the U.S. Census Bureau. Don’t be surprised when the 2010 Census finds even more people leaving to escape California’s 11.5 percent unemployment. And, as jobs and residents fled California, its tax revenues have declined, while its politicians went on a spending binge, creating a severe budget crisis.

It is mystifying to me how President Obama or anyone else can look at the mechanics of a cap and trade system and believe that it will be a net job generator. Think about it this way: Cap and trade is a way to force the country to reduce the use of low cost fuels and substitute high cost fuels. That’s really what a carbon tax is all about. The reason for doing so is that carbon allegedly has external costs in the form of pollution that are not being taken into account by the current price. That’s a matter of debate, but raising the cost of energy will not produce jobs. When oil prices rose in the seventies, did we get more jobs? No, we got stagflation. When oil prices doubled in the late 80s, did we get more jobs? No, we got a recession. When oil prices tripled from ‘99 - ‘01, did we get more jobs? No, we got a recession. When oil prices rose to $147 last year, did we get more jobs? No, we got a recession.

If you raise the price of energy, we will necessarily spend less on something else.  The only way you can possibly offset the effects of a carbon tax (and make no mistake, that is what cap and trade is) is to reduce taxes on something else. That is problematic because making it truly revenue neutral will be extraordinarily difficult, but it is possible.

If you are in favor of raising the price of carbon based fuels through cap and trade or any other mechanism and you don’t offer to offset the cost by cutting some other tax, please cease and desist from blowing sunshine up the public’s skirt and saying that it will create jobs. It won’t. It will cost jobs and maybe a lot of them. I don’t think most Americans are willing to make that tradeoff right now and probably not in the future either.