I just returned from vacationing with my family in California, a state that is hurting terribly right now economically and is also a "leader" among states in the fight against global warming. While vacationing, we spoke with a few locals and just about all had personal stories to tell about the economic perils of the state. One older couple described how one of their sons had been laid off from his job and wasn't enjoying being "Mr. Mom." Another couple told us a story of gettign IOUs from the state in place of a state tax refund.

In a previous post, I presented the notion that "cap and trade" legislation was, in reality, a tax on businesses. Proponents of cap and trade have argued it is not a tax because the revenue from the purchases of carbon credits (the permits required to emit the restricted materials) does not go to the government. But, it's just the same to the business- a penalty they must pay which is calculated more or less as a portion of their overall production.

Politicians like to say things like "This isn't a tax on the individual. This is a tax on corporations." A lot of people buy into that, but people who understand how business works realize a tax on business results in a burden on individuals because businesses aren't going to eat the cost of those taxes -- they're going to pass it on to the consumer. Cap and trade is no different.

Over the last couple of years, there has been talk about a carbon tax instead of cap and trade. This would be a literal tax and would provide revenue to the government from companies that emit over the prescribed capped levels. Either way, it's still an additional cost on production for companies that are already struggling in today's tough economy and operating in a country with some of the highest corporate tax rates in the the world.

What do large companies do when the cost of operations in a region is high? They do what many "evil" American companies do: they move operations to a region where operations can be done under more friendly terms. Case in point: California. Increasing regulations, taxes, and red tape have prompted California employers to relocate to other more business-friendly regions over the last decade. The result: A recent headline indicates unemployment numbers in California around ten percent!

Finally, here's some food for thought: American companies, whether out of principle or because of the intimidation of the Environmental Protection Agency, generally conduct the cleanest operations in their industry, worldwide. This doesn't surprise me after I see automotive manufacturers repeatedly include verbiage in their marketing about how little energy they use, how much recycled material they use, or how much they do to offset their impact on the environment.

If you buy into the idea of global warming gradually destroying our planet, you should realize that almost all regulatory schemes like cap and trade are based on older, flawed models like Kyoto. If these regulation schemes force companies to move operations to regions with less cost/regulation or force manufacturers to purchase their raw goods from producers in other countries, the overall impact to the planet probably isn't going to change. Countries with inexpensive labor costs like China, India, Russia and others have practically no incentive to regulate their impact on the environment whatsoever.

The best policy, both for our economy and for the good of the planet (if you're an alarmist) is to promote production in the United States where we do things clean, efficiently, and under a watchful eye.