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Viewpoints: The US Cannot Afford Cap and Trade

William A. Levinson




Henry Ford said that there are exactly three ways to create wealth: grow it, mine it, or make it. In 1999 only 18% of the US gross domestic product consisted of growing, mining, and making, and it is even less today. Because Ford also was able to continually reduce the per-unit labor content in his vehicles, he made labor's wages largely irrelevant. He therefore never shopped around for cheap labor, but two conditions for placement of a new factory were non-negotiable. These were access to transportation (e.g. rail and the Great Lakes, to bring in coal and iron ore respectively), and cheap energy.

The lesson here is obvious. Even the best, leanest manufacturer on earth cannot reduce the basic energy costs of making, for example, steel or aluminum. The obvious way to deal with carbon taxes or cap and trade mandates is to move what is left of our crumbling manufacturing sector, along with all the carbon emissions and the highwage jobs, to countries that offer cheap energy. The Heritage Foundation (Washington, DC) estimates that the Waxman-Markey bill being considered by Congress will destroy 1.4 million manufacturing jobs by 2035, and cost the US more than $9 trillion in GDP by 2035.

Global warming alarmists, whose position seems to rest on a rapidly crumbling foundation of slipshod research practices like loss or disposal of raw data, and perhaps worse, contend that carbon taxes or cap and trade mandates will "encourage manufacturers to use energy more efficiently," and "promote investment in renewable energy sources." We know of no manufacturers who currently want to waste energy from any source, whether it be coal, hydroelectric, nuclear, or even wind. Regenerative braking has been used in machine tools for decades, and its application to vehicles began long before anybody worried about genuine air pollution, let alone oil shortages or a gas everybody exhales every few seconds. The following is from a patent that was issued to Hilding Lübeck of Sweden in 1923, more than 70 years before anybody ever heard of a Toyota Prius.

"The present invention consists of using the potential and kinetic energy of electrically driven vehicles, particularly such using storage batteries, in running downhill or in changing rapidly to a slower speed, by transforming said energy into electrical energy, for instance in charging the storage battery, whereby at the same time the braking of the vehicle is effected."

Engineers and industrialists do not need carbon taxes, cap and trade, or other so-called incentives to encourage them to use energy and other resources as efficiently as possible. Henry Ford developed what we now call green manufacturing when he could have legally dumped into the nearest river whatever waste wouldn't go up his smokestacks. Upton Sinclair's book, The Flivver King, reports that the smoke that once went up Ford's chimneys was made into automobile parts. The truth behind this statement might have been the fact that Ford used charcoal to adsorb and recover for reuse solvent vapors that would have otherwise been released into the atmosphere, or burned as waste.

Nothing stops people from investing in renewable energy right now, except for the elephant in the living room known as Net Present Value (NPV). Wind turbines and—especially—solar panels, apparently cannot pass a NPV analysis even at today's extremely low interest rates, and therefore low required rates of return. If they could, they would be in widespread use. That's why manufacturers of wind turbines and solar panels must agitate for laws to handicap their fossil-fuel competitors.

An analogy would have been for Henry Ford to whip up hysteria against solid equine waste—and manure in the streets, unlike carbon dioxide, is a genuine menace to human health—and get the government to tax horse food. Instead he got the price of the Model T low enough that it became cheaper to own an automobile than to own a team of horses. It's clear that the US Climate Action Partnership and its fellow travelers are not up to a job that a man who went to a oneroom schoolhouse and never finished high school not only could do, but did so well as to create millions of high-wage jobs, while helping to make the US the wealthiest and most powerful nation on earth.


This article was first published in the April 2010 edition of Manufacturing Engineering magazine. 

Published Date : 4/1/2010

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