What Will Cap-and-Trade Do To Employment?

As the US House gets ready for another rumble between energy-policy heavyweights today—Al Gore and Newt Gingrich are on the ticket—one big issue is emerging as the flashpoint of the whole debate over climate legislation: Is it a job-killer or a job-creator? Both, it turns out. Which is what makes the debate so acrimonious—both sides can be right and wrong in equal measure.
Take organized labor, a perfect illustration of climate policy’s deer-in-the-headlights effect. Unions and environmentalists have joined forces to push for climate legislation (and, not coincidentally, the union free-choice act) as a way to create green jobs. The Blue Green Alliance is running ads of steel workers touting the potential of cap-and-trade to resuscitate steel mill jobs that have disappeared (Source: Wall Stret Journal)

The problem is what to do about the jobs that are still here. Unions are worried that the extra energy costs from a cap-and-trade bill will handcuff U.S. manufacturing firms in key industries such as steel, cement, and the like, pushing those jobs into regulation-free havens from Mexico to China.

A new report from the National Energy Commission, a bipartisan energy think tank run by former Obama adviser Jason Grumet, set out to see what cap-and-trade would do to industry and how that blow could be softened. The extra costs from cap-and-trade are real, but not huge: The report found the steel industry would see costs rise 4% to 11% by 2030; the aluminum and chemicals business would see about a 2% cost increase.

The report identified two partial fixes: Improve energy efficiency at factories or give those industries emissions permits for free.

Plenty of plants could partially offset higher energy bills through new technology, though it’s not cheap and could take years to do. Giving vulnerable industries free emissions permits would buy time to invest in more efficient technology and offset most of the extra energy costs. But, as the report fails to note, only at the cost of making the rest of the economy pick up the slack.

The whole question has become fodder for the battle of sound bites. This morning on Fox News, Rep. Joe Barton warned that cap-and-trade policies would kneecap Texas cement plants and send them and their jobs scurrying to Mexico.

“And that’s why we’d give free allowances to industries like cement and steel,” countered Rep. Jay Inslee of Washington.

Stay tuned. The fun is just beginning.