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The cap and trade debate is heating up. Environmentalists want accountable energy users while businessmen want cheap energy. Its not the best time for legislation like this, especially considering the measures put forth by Obama could raise the energy prices for many American’s by as much as 50%. That’s going to have a huge impact not only on energy, but the economy as a whole.

A carbon tax appears inevitable. The democratically controlled government is hell-bent on creating a carbon tax to limit the amount of energy that is consumed in the United States both for environmental reasons and what is now becoming a war between the states to improve their local economies.

The problem with the legislation is that it would sweep through the entire US, from California to New York and put a hefty price tag on co2 emissions. The tax wouldn’t be applied to the energy companies, no, instead it will be passed directly onto the end user, the homeowner, the small business owner, or the xbox playing 16 year old.

Other than the fact that a direct tax on energy would limit demand, its also going to put some states in an excellent economic position while forcing many others into economic turmoil.

Take for example my home state, Indiana. Here in Indiana we love our coal, its everywhere, its cheap, and it gets the job done. The problem though is that the use of coal to produce energy creates tons upon tons of co2 emissions. Coal is cheap for a reason.

We like coal so much though that today some 94% of all electricity produced and consumed in Indiana comes from coal. Our neighbors to the south aren’t much better, Kentucky comes in with 94% of all its electricity produced from coal. By comparison, California derives just 1% of its energy from burning coal.

So what we have here is a situation in which certain geographical areas are going to be extremely hard hit by a new tax. Goods produced in the heartland of the US are going to be much more expensive, factory operations are going to cost much much more and the worst part about the new tax is that it creates zero new jobs. Instead it derives wealth from productive pieces of society and gives it to the government, which can then spend it however it likes.

There are certainly some major plays on this whole carbon credit debacle. Hoosiers (what we call people who live in Indiana) aren’t going to have nearly as much disposable income with the new tax than they would have without it. Californians are going to feel virtually no change in the price of their energy. So where is business, factories included, going to go? Elsewhere.

The heartland of the United States would be in crisis mode should this happen. Our factories and our energy suppliers are the most important elements of our trade balance (currently an imbalance). Should this legislation pass, you’re short anything that operates in the central United States. People are simply going to have LESS money than everywhere else. Less money means a lesser standard of living and worsening earnings reports. With our economy already trying to tread through a deep recession, this piece of legislation is sure to be the straw that breaks the camel’s back.

Its not that being eco-friendly is a bad thing, its just that we simply can’t afford it. Not now, maybe later, and why take the high road when our foreign competitors are extremely unlikely to cut their emissions of co2? This is going to create an even larger trade imbalance, and give an absolute advantage to foreign factories.

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