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Why the Business Community Is Wary of Cap-and-Trade: a View From Virginia

The House recently passed a controversial bill that seeks to establish an emissions trading structure referred to as cap-and-trade. It passed by a very slim margin, mostly along party lines, and was opposed by 44 Democrats. If the bill manages to pass a vote in the Senate and is signed by President Barack Obama, it would impose strict limits on the carbon-based energy used by American businesses.

In a state like Virginia, where 81.1 percent of our energy is carbon-based, this means businesses will be forced to take on enormous costs from the government or from traders even if most of the initial allowances are granted. A state-by-state study released by the National Association of Manufacturers this week showed Virginia losing between 41,400 and 56,400 jobs over the next two decades if this legislation is passed.

Cap-and-trade will effectively become one of the biggest tax increases in U.S. history. Even if allowances are granted for emissions permits to help offset the costs, those allowances will likely be temporary and not address the underlying deficiencies in the legislation.

Meanwhile, large polluting countries like China and India have indicated time and again that they will not slow down their own productivity in order to address climate change. Of course this begs the following questions: How effective can our very expensive cap-and-trade system be without the participation of the world’s fastest-growing economies, and how will it affect the competitiveness of American businesses?

Furthermore, given the lack of transparency with cap-and-trade systems, the environmental benefits are far from certain. In fact, prominent environmental advocates Greenpeace and Friends of the Earth actually oppose the current plan because they are unconvinced the bill will deliver the emissions reductions they believe are necessary.

What is far more certain is that cap-and-trade will place a tremendous burden on businesses and households just when the nation should be emerging from the recession. The Energy Information Administration released a report that showed a likely loss of jobs if a cap-and-trade system is put into place. Moreover, the Heritage Foundation claims that unemployment will increase by 2 million during the program’s first year. Over the long term, it found that cap-and-trade will likely result in a reduction of gross domestic product of $161 billion in 2020.

Cap-and-trade will have the greatest impact, however, on Virginia’s manufacturing and agricultural operations, the backbone of our state’s financial strength. Many businesses will have to forgo investments that could have increased productivity and created jobs in order to meet emissions standards.

This also gets us back to the initial concern about emerging countries such as China and India not participating in a similar system. Because we have seen literally millions of U.S. jobs move to foreign countries — largely because of lower wages and operating costs — the House-passed plan will lead to more job losses in the manufacturing sector. The U.S. already has much tougher environmental, safety and tort laws than those of competing countries. Passing the House-backed plan would create an even more unlevel playing field in the manufacturing sector.

This is a global problem that requires a global solution. China alone is scheduled to build so many new coal plants in the next few years that it will more than offset progress in the U.S. Once we pass legislation, we will have surrendered our leverage to bargain effectively to create a truly international solution to the issue.

In the meantime, energy prices will increase across the board, which will bring about a higher cost for goods and services throughout the economy. This will fundamentally change Americans’ quality of life. Economists have also pointed out that passing along the increased energy costs is highly regressive and will disproportionately affect our nation’s most vulnerable citizens. The bottom line is that poor people — and even unemployed people — still need to drive cars and pay electric bills.

Rather than hastily passing a bill that penalizes American businesses and citizens, let’s work toward an outcome that addresses the issue without costing our country more lost jobs and lowering our standard of living.

Joseph C. Farrell served as the chairman, president and CEO of the Pittston Co. (now the Brink’s Co.) from 1991 to 1998, a Fortune 500 coal, mineral products, transportation and security services firm headquartered in Richmond, Va.

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