In mid December, Reuters reported that Washington state Governor Jay Inslee had unveiled a proposal to enact a cap-and-trade program. Cap-and-trade is a system whereby limits or caps are imposed on companies that usually utilize fossil fuels. Once their limits are reached they can reduce their pollution or buy permits at state-run exchanges or from other companies. The scheme that Governor Inslee proposed is similar to California’s. However, The Golden State is immersed in a controversy as state gas prices are slated to go up resulting from California’s cap-and-trade arrangement.

Just today The Washington Examiner reported that a study conducted by the National Bureau of Economic Research states that cap-and-trade programs kill manufacturing jobs. The data was based on a cap-and-trade strategy implemented by the Environmental Protection Agency in 20 states during 2003. The manuscript points out that in states affected by cap-and-trade manufacturing jobs decreased 1.3 percent which is 110,000 manufacturing positions total in affected states. According to The Washington Examiner, the study also pointed out:

Manufacturers in the top quartile of energy-users cut jobs by 3.9 percent more than low energy-users in the bottom quartile.

The job cuts primarily affected young workers, while newly hired workers saw their earnings fall. Rather than firing workers, most of the employment reductions came from reduced hiring — which is why older workers fared better than new ones.

There are several possible causes for the manufacturing job losses caused by cap-and-trade. Many firms were affected by higher energy costs. But large manufacturing plants that produce their own energy were directly regulated under the cap-and-trade program. “Direct regulation may have led existing firms to decrease employment and discouraged new firms from locating in the regulated region,” the study speculated.

While cap-and-trade is preferred by companies to a command-and-control style of environmental regulation, the fact that cap-and-trade affects job creation in this way makes it crystal clear that it is nice in theory but lousy in practice since it imposes huge costs on energy producers who (in turn) pass on those costs to their customers.

Cap-and-trade is a scheme that was proposed by Republicans. Democrats signed on to this since they knew that the possibility of passing sweeping climate change legislation was extremely difficult so they obviously decided to take a middle ground approach. However, despite its pitch as being a market-oriented solution, a command-and-control style of regulation on pollution may as well have been executed since the end result of cap-and-trade is still the loss of jobs. Cap-and-trade is still a capitulation that human activity is the case of environmental degradation and imposes a tax on pollution which is a way to force people to pay even more for the lifestyles we enjoy.