Cap and Trade Wrecks McAllen and the Rio Grande Valley
By Dr. Tony Magana
The enactment of the proposed cap and trade legislation creating a new levy of taxes on energy for carbon emission undoubtedly begets a negative economic impact on South Texas of historical proportions.
The Texas A&M Real Estate Center reports the state economy is “sliding deeper into recession”. Over the past year the overall unemployment rate has increased from 4.7 percent to 7.1 percent. Although the McAllen-Mission Edinburg area still has a positive growth rate over the past year it is barely so at 1.8 percent.
McAllen has received national attention for a record achievement in job growth and business expansion in the past several years. The national recession has had a blunted local effect but not totally. Key to survival has been the function of McAllen as a gateway of trade to Mexico. The past several decades have seen the local economy gradually transform from being solely agri-business to become a more complex center of commerce and industry. Not only have financial services and health care soared but increasingly manufacturing interests are finding the area favorable.
A major tenant of cap and trade legislation will be the institution of punitive tariffs against countries which will not participate in the liberal Democrats vision of regulation. The announcements of China, India, and Mexico of their firm intention not to join the United States in carbon emission regulation as dictated by the Obama and the Democrats in Congress will have direct and dire consequences on the McAllen economy.
Many of Obama’s political supporters have long favored severing NAFTA in an ill advised protectionist measure to reward labor unions for their political contribution to the Democratic victory. Although publicly he has refuted protectionist measures, cap and trade now provides a backdoor for Obama to get out of NAFTA by using climate change as an excuse. Embargo or tariff against Mexican products will decimate the border economy of trade.
The very progressive Center for American Progress (CAP) predicted that cap and trade legislation “will generate major employment benefits for Texas”. They claimed that Texas would see a increase of $12.7 billion in investment revenues and 153,000 jobs . By enacting the Obama initiatives even with the severe penalties on the state’s petroleum industry they guessed that the unemployment will still drop to 3.6%. Not surprisingly they are alone in their assessment.
The Brooking Institute and other more highly regarded progressive or liberal think tanks have all admitted that cap and trade will be be expensive. They argue that sacrifice is necessary to prevent further harm from occurring. Critics of cap and trade point out that at best even with a major financial sacrifice only a one degree difference if any will be seen in a fifty year time period.
The Beacon Hill Institute in Boston performed a detailed analysis of the effects of cap and trade legislation on the state of Texas. They conclude the new laws would “inflict large negative impacts on the economy of Texas”. Instead of seeing positive effects on the economy, the carbon tax would increase energy costs significantly, reduce the total number of jobs in the state, reduce wages and actual disposable incomes of workers.
The Electric Reliability Council of Texas in May took a look at what would be the effect on electricity prices should cap and trade legislation become law. In their report they assumed the government would limit the cost per ton of carbon emitted to very low prices ($40-$60), the cost of natural gas would be stable, and there would no relative increase in electrical demand. With these assumptions an increased cost to the consumer of $27 per month was estimated. Unfortunately, this is quite flawed thinking because in reality, raising industrial costs of electricity to artificially keep residential costs low will drive business and manufacturing out of Texas. Additionally, although a significant portion of wind energy and solar energy could eventually come online the penalties to Texas fossil fuel generating plants especially if fuel prices go up will lead to energy prices skyrocketing.
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Texas is the largest consumer of coal and electricity in the United States. Twenty-five percent all U.S. petroleum production and refinement occurs in the state. Although some advocate that replacing coal burning plants with natural gas burning plants can be accomplished easily and economically, electricity produced by natural gas is more expensive. Currently there is a glut of natural gas supplies worldwide but many experts are predicting the eventual rise in demand in gas will lead to significant price increases in the future. Instead of being a leader in attracting Fortune 500 companies who can export their products worldwide from Texas, there will be a transformation of the state into a pariah to business.
An analysis by the Heritage Foundation comes to a much different conclusion then the CAP. Combining the effects on the two Congressional districts which currently serve the greater McAllen area , that of Henry Cuellar and Rueben Hinojosa, the following would be seen starting in 2012. There will be a combined first year $737.42 million loss in economic production which will proceed to average $ 734.08 million in losses beyond 2012 extending to 2035. Personal income will drop cumulatively $925 million initially and average $ 268.01 million in losses annually through 2035. Non-farm jobs will see 7.404 losses initially and then average 2,712 job losses per year through 2035.
Cap and trade legislation will have a double negative impact on the economic livelihood of McAllen and the Rio Grande Valley. Residential consumers will see their own energy prices rise. South Texan’s prospects for higher wages and better employment will be diminished as industry will no longer be drawn to an area with unique geographical benefits and low costs. The long history of co-beneficial commercial development along the border of two great nations will be replaced by a political trade war being waged by the Washington DC establishment against the interests of Valley residents.
Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin
Copyright 2009, Dr. Tony Magana. Some rights reserved.
To reproduce or distribute, visit: drtonymagana.icopyright.com
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