Cap and Trade: Don’t Forget the Shipping Industry!!

http://www.reuters.com/article/environmentNews/idUSTRE5364J420090407

The linked article summarizes the Obama administration’s plans for a “cap and trade” system that has a two-fold purpose:  cutting carbon emissions to combat global warming and reducing our dependence on foreign oil.  The basic idea is that the program would begin with the government auctioning permits to industry that would allow them carbon emissions – essentially paying for the privilege of burning fossil fuel.  Once auctioned off, permits can be traded and sold.  This would cap carbon emissions at a certain level.  It would also have the effect of raising the price of fuel and energy, forcing efficiency and a shift to clean and renewable forms of energy.

In crafting such a plan, each nation will have a tendency to draw a line along its borders and apply the program to industries located within.  But there’s one industry that, lying within no one’s borders,  may tend to fall through the cracks – the shipping industry.  For example, each year thousands of container ships arrive from China, Japan, Korea and other exporting nations.  On average, each arrival has burned about 2 million gallons of fuel crossing the ocean, just on the inbound leg.  Obviously, since the U.S. has an enormous trade deficit, many of these ships return empty, burning nearly as much on the outbound leg of the trip.  This amounts to many billions of gallons of fuel per year.  Someone needs to fold this industry into their cap and trade plans. 

The obvious approach may be for each nation to sell permits to shipping industries operating within its borders.  But this would be exactly the wrong approach.  It would simply drive shipping operations offshore to nations without cap and trade programs.  The right approach is to apply a tax to all inbound ships, including ships delivering imported oil.  Each nation has control of its imports, and no control of exports.  Taxing the fuel burned by inbound ships would encourage domestic manufacturing and have the desired effect of dramatically reducing carbon emissions from the shipping industry.  It would also encourage the spread of cap-and-trade programs around the world, forcing other nations to tax the fuel burned by inbound ships in order to prevent their exports from being put at a competitive disadvantage.  On the other hand, taxing the fuel burned by outbound, export-laden ships would encourage other nations not to subject their outbound ships to cap-and-trade, worsening our competitive position and intensifying the global trade imbalance that has collapsed the global economy. 

For the U.S., this would have the highly desirable side effect of reducing our trade deficit.  Sure, nations like China would also tax imports from the U.S. but, since we’re the ones with the trade deficit, any overall reduction in trade will ultimately work in our favor.  

Also, let’s not forget that there may be no industry more capable of switching to renewable energy than the shipping industry.  Until the invention of the steam engine, all trans-ocean commerce was carried in sailing ships.  The wind is still there and could be utilized again.  Sure, ships will be smaller and slower, so we’d need bigger fleets – a boon to the ship-building industry. 

When it comes to a cap-and-trade program, let’s not forget the hundreds of billions of gallons of oil being burned on the high seas.

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6 Responses to Cap and Trade: Don’t Forget the Shipping Industry!!

  1. Clyde Bollinger says:

    The absolute arrogance of puny man in the notion that humans can, have or hope to significantly altered the earth’s atmosphere is so extreme as to be laughable were it not for such disasterous notions as ‘cap and trade’ conficatory legislation. Global climate change is real and on going. It has and will continue with or with out humans. The fossil fuels we so despise are a direct result of previous climate change. Oil deposits above the arctic circle, in the North Sea, Canada, etc., would be impossible were it not for global warming in eons past. It is highly likely that the planet’s climate will become too inhospitable for human survival in centuries to come. At best, we can possible alter the date by a few years, but it is foolish to think we can prevent it. In the opinion of numerous scientists, the warming and cooling cycles that have gone on since the beginning will no doubt continue and on schedule.
    Instead of the foolish attempt to alter global climate, I’d far rather see some meaningful research effort in the economical production of hydrogen as an alternate fuel source. I’m convince that some day the secret to breaking the bond between oxygen and hydrogen will be revealed and the earth’s energy problem will be solved. In the meantime, let’s make the most of the oil, coal, natural gas, etc. that we have.

    • Pete Murphy says:

      You and I will just have to agree to disagree on this, Clyde. My purpose in raising the cap-and-trade issue is that, if implemented correctly, not only would it help to break our dependence on foreign oil but it would have the same effect as tariffs in reducing and perhaps eliminating our trade deficit. Unfortunately, it probably won’t be implemented at all. By making it a tax increase instead of offsetting it with income tax reductions, Obama has probably doomed its chances of passage.

      I too have longed to see the development of hydrogen, derived from water by breaking the H2O molecule. Another ultimate solution that some have suggested is the development of nuclear fusion. The problem is that it’s beginning to look ever more unlikely that either of these is technically feasible. So, until the technology is proven, the only prudent course of action is to start cutting our dependence on oil and developing alternative, renewable sources of energy. Personally, I don’t believe it’s technically feasible to do even that at the level required to meet the needs of our existing population. Ultimately, we have to come to the conclusion that we can’t sustain the our quality of life at today’s level of population.

  2. Clyde Bollinger says:

    Just for clarification, where do we disagree? I realize I take a rather unpopular position on climate change but I remain unconvinced of man’s capacity. Oh, sure, our capacity to polute is well documented, but there is too much natural evidence of repeated climate cycling for me to place the blame on man.
    I completely agree that we need to develop alternate energy supplies and sources. Some things such as jet fuel don’t seem to have a substitute. Other than for uses such as this, our remaining oil supply should be conserved for those non-fuel uses such as medicine, lubricants, plastics, etc., that can not be otherwise replaced.
    Sustaining our quality of life is rapidly becoming more elusive. As you recently observed, the worldwide glut of labor has the inescapable result of driving wages down resulting in a lessened capacity to afford the quality of life even without the energy problem.

    • Pete Murphy says:

      It seems we disagree on whether or not this global warming is man-made. I’m no expert, so my opinion is of no more value than anyone else’s. But I’ll explain why I believe it. It’s a fact that the planet’s climate has swung dramatically over the course of its history. But the data I’ve seen about the level of CO2 in the atmosphere, and its correlation with the increased burning of fossil fuels over the past hundred years or so, have convinced me that this swing is real and man-made. The evidence that hits closest to home is the lake in northern Wisconsin that I wrote of in the book. It’s slowly drying up. It’s a natural lake, carved out by glaciers, without any streams flowing in and out – totally dependent on precipitation to make up for the loss due to evaporation. (It’s at the high point of the northern Wisconsin headlands area.) The average depth of the lake is 10 feet. Over the past few years, the level has fallen by about three feet. Local scientists say that it’s due to lower than average precipitation and higher water temperatures that increase the rate of evaporation. (Average water temperatures have risen about 2 degrees over the past decade.) It’s the same thing that has caused Lake Superior to fall by 10 feet or more. I keep hoping for some heavy rain or snow to fill it back it up, but it never comes. When I was kid, it used to rain about half the time up there during the summer. Now it hardly ever does.

      I try to stay away from the environmental issues on this blog for the most part because, like I said, I’m no expert on that subject. But, in this case, the solution for global warming plays into the hands of those of us concerned about trade and, ultimately, overpopulation as well.

  3. Clyde Bollinger says:

    Pete,
    I’d be willing to bet a tidy sum that the water level in the lakes is as much a result of the population increase as it is climate change. Not good in either case. I say this because the area where I grew up was always one of plentiful high quality water just below the surface. If, for instance, we needed to isolate cattle away from a regular water supply, we could sink a hand driven well with a cast iron pitcher pump in a few minutes and have as much water as needed. Now the water table is 30-50 feet lower and requires power drilled wells with powered pumps to bring it to the surface. Lakes and ponds are lower as well. Local authorities attribute the change to increased population and the attendant greater demand. Part of that demand is due to irrigation. In theory, irrigation should be relatively low loss, since it goes right back into the soil, but it doesn’t seem to get back into the water table. In any event, climate change is real and will likely become drastic in ways we have not yet imagined.
    All of the new pavement for streets, parking lots, etc., cause rapid runnoff. The streams have had to be channelized to the handle the increased volume and the runoff quality is compromized by fertilizer, waste, polution, emmisions, etc.
    Strange, how nearly every issue can be linked to the same population arguement.

    • Pete Murphy says:

      I’m sure that’s the case in a lot of places, but not at our lake. We’re actually on an Indian reservation and the population is quite small. The whole area is more lake than land, and much of the land is swampy peat bog that’s undeveloped. Most of the people there draw their water from wells and have septic systems, so the water goes right back to the ground. I’ve been tracking the precipitation closely because the lake level worries me and I can attest to the fact that, for whatever reason, it’s been below normal for some time. I’m hoping that it’s just a cycle but everyone there says the lake is much lower than they can ever remember it.

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