Warren Buffet has made his opinion on Cap and Trade known, and as I believe they should be, his words are being taken seriously. A post today on theenergycollective.com analyzed Warren Buffet’s comments on Cap and Trade, and pointed out a few reasons why they believe he is wrong. While I agree with the points in the article, as well as others, there is one point that is consistently missed when quoting how much utility bills will go up.
The actual impact cannot be calculated by taking just the raw costs and dividing by the number of consumers. If you believe in the laws of economics, which I am sure Warrent Buffet does, then the Consumer Theory in microeconomics tells us that if prices go up, consumption goes down. As energy bills start to rise, people become more conscious about energy usage and find ways to be more efficient. They start turning lights off when the leave the room, they don’t leave doors open and let the AC out, they turn the thermostat on the AC up a few degrees, etc.
People not currently concerned with energy efficiency for conservation reasons become concerned because it directly affects their wallet. These effects are very hard to predict, and but the revised number in the article of an added $30/month is still high, when taking only the direct causes into account. As consumers use less energy, less CO2 is also emitted, meaning that emissions costs to the producers will also be lower. These same effects were observed when oil prices spiked in 2008. In summary, people drove less, they carpooled, and ultimately purchased less gas. As less was purchase, supplies increased, dropping prices.
The cost to consumer estimates only take into account direct effects of the study. In addition to the effects on consumption habits, the studies also ignore effects of other parts of the legislation. The entire system must be taken into account, rather than just direct costs. Incentives for energy star appliances will reduce energy consumption. Energy efficiency subsidies will have effects, and the list goes on.
I still respect the words of Warrent Buffet, but I do feel he is missing some key points. While the external effects are extremely difficult to quantify, existing estimates as to the real financial impact to consumers are still too high.
