Global economics is cyclical, on a host of levels.  Economies rise and fall, and national prosperities grow and shrink given how they compete with other nations.The strength of the American dollar, for instance, rests on a host of issues and our ability to trade effectively is bound up in the strength of our economy and our currency.  The more expensive it is to buy from America, the less people will do so.  It is a lesson Europe has learned the hard way, as the cost of manufacturing there has skyrocketed over the decades, and the problem was only exacerbated by the extreme regulation of CO2.

This month’s anniversary of the Lehman Brothers collapse and Washington’s renewed focus on Wall Street risks has bearing on climate policy. As economists continue to examine the fall-out from the recent Wall Street fiasco, many analysts are taking precautions to avoid the next market collapse. However, if Congress implements a federal cap-and-trade program and links it to the international emissions market, it is easy to predict what that next financial bubble will be— a carbon bubble.

Just as the repercussions of the housing bubble were felt worldwide, the creation of the carbon bubble would also have global effects and the entire economy would have a stake in how it performs. Furthermore, it’s becoming clear that the global carbon bubble is  bad for the U.S. economy from the start, while actually benefitting companies abroad. If Congress implements a national cap-and-trade program and then links it with the E.U. system, it would mean high carbon prices for the U.S., and lower prices for Europe. According to a 2009 report by Point Carbon the creation of a U.S. carbon market linked to the EU systems could slash EU carbon prices by 50% and increase U.S. carbon prices by 10-30%.

British P.M. Gordon Brown’s recent study argues, predictably, in favor of a linkage system, that while costly for American's provides political coverage to Prime Minister Brown's unpopular administration as they try to maintain their involvement in the EU ETS.  This is clearly an effort to divert attention from the reality of higher prices for U.S. consumers in a linked ETS system.

The creation of a linked U.S. carbon market would mean billion dollar cost increases for Americans. The price stabilization resulting from a global market for carbon credits would eventually raise the price of CO2 to $20 or more per ton. Since Waxman-Markey allocates little more than 5.4 billion tons of allowances in 2016, Americans would be looking at increased costs of over $100 billion.

It is the job of Congress to look out for the well-being of American citizens and businesses, not foreign companies. Instead of helping Europe recover from their failed policies, America should learn from their mistakes and avoid going down this same misguided path. The ETS has yet to achieve significant emissions reductions and has only served to increase volatility in energy prices and hinder European businesses. 

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