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On April 20, 2009, Venable partner and former Secretary of Transportation Jim Burnley responded to a question from editor Lisa Caruso posed to the Transportation Experts Blog on National Journal.com.

Caruso’s question was “How would different modes of transportation fare under a cap-and-trade regime for reducing greenhouse gas emissions? Which modes would be winners and which would be losers, and what can the different modes do to lessen their impact on the environment? Are market incentives enough to bring about sufficient cuts in the estimated 30 percent of greenhouse gas emissions that come from the transportation sector?”

The following is the text of Burnley’s response:

Cap and trade, as envisioned by the Obama Administration and Congressmen Waxman and Markey, will do grave damage to all transportation sectors.

While the Administration proposed a 14% reduction in greenhouse gas levels by 2020 from 2005 the Waxman/Markey draft bill mandates a 20% reduction, going to a 42% reduction by 2030.”

Cap and trade really is cap and tax, and, yes, it's a floating carbon tax. Since the emissions caps are hard, the pseudo market created by government edict has to yield prices that force various sectors of our economy to reduce emissions by the required amount. Transportation is accused of being responsible for 30% of greenhouse gas emissions, so it will have to alter its activities to generate at least 30% of the required reductions. Presumably, if that isn't occurring, then the government agency controlling the "market" in emission allowances will manipulate the rules to force further reductions.”

Thus, the prices of transportation that are in any way carbon fueled will be forced sharply upwards over relatively short periods of time. That is precisely the point of such a system. Cap and trade cannot repeal the laws of supply and demand in the real world, so demand for transportation services will be suppressed, unless and until carbon is no longer a significant transportation fuel.

The Waxman/Markey bill contains another dagger pointed at the heart of the maritime, railroad and trucking industries: carbon tariffs. To combat what is being styled "carbon leakage" (i.e., production moves to countries that don't similarly reduce emissions), the bill would give the President standby authority to impose tariffs based on the carbon content of imported goods. Thus, if China and India stick to their current positions that they won't impede their economic growth by agreeing to such reductions in emissions, imports from those countries will be penalized accordingly. I haven't yet seen an explanation of how this is permissible under GATT.

Finally, if such a massive carbon tax ($650 billion to $1.9 trillion over ten years) is imposed, I can't imagine a political scenario that also results in increases in direct fuel taxes dedicated to the Highway Trust Fund. While proponents of cap and trade have suggested a variety of ways to spend this massive influx of revenue, virtually none of them have endorsed depositing to the Highway Trust Fund the revenues generated by transportation activities. While there is an overwhelming consensus that we need to invest heavily in the renewal and expansion of our transportation infrastructure, we seem to be headed toward a scenario in which carbon taxes ultimately paid by transportation users are diverted to nontransportation uses.