Warren Buffett is wrong about cap and trade legislation, writes Eric Pooley at Bloomberg.
Pooley, a former editor at Fortune, who is working on a book about global warming and politics, explains three flaws in arguments regularly trotted out by the Oracle:
1. It’s regressive. The CBO’s analysis of the bill says by 2020, the average annual cost is $175. The poorest people in the contry actually end up with a $40 rebate annually.
2. It’s a tax. It’s not a tax. It produces credits for CO2 which fall over time. As the allowable emissions decrease, money flows to more efficient producers. As Pooley puts it, “A new tax means more work for accountants. Cap and trade unleashes the engineers.” A real tax would just be “old school regulation.”
3. It costs $110 a month. David Sokol, chairman of MidAmerica said that would be cost for his company to buy emissions. Since then he’s adjusted his maths. He says the number isn’t “terribly useful,” because his maths assumed that residential customers would buy all the allowances and commercial and industrial users wouldn’t pay a dime. That’s unrealistic Sokol admits.
Here’s Pooley’s take on MidAmerica, Sokol and Buffett:
Cutting carbon emissions won’t be free, but Sokol hasn’t helped his case by hyping the costs for Iowa consumers, who have gone 14 years without a rate increase. His revised estimate for the allowance costs comes to an average of $30 per month per customer — residential, commercial, and industrial.
That’s a far cry from $110, but even it is too high, according to economist Nat Keohane of the Environmental defence Fund, because it assumes that rate payers will foot the bill for all of MidAmerican’s allowance costs — including the 30 per cent of its power it sells into the deregulated wholesale market.
MidAmerican wouldn’t get free allowances for that wholesale power under the bill, and I think that’s the real reason Buffett and Sokol are against it. The system is designed so that free permits flow downstream to the people who pay for the power. That’s good for consumers, but could hurt MidAmerican shareholders, meaning Buffett’s Berkshire Hathaway Inc.
Bottom line: MidAmerican made some bad calls. It turned on a huge new coal-fired plant in 2007. It chose not to spin off its wholesale power business. And when other utilities were hammering out their allocation deals with Congress, Sokol and Buffett sat out the negotiation.
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