Oh, and I might add, enrich the pockets of Goldman Sachs and all of their former & future employees now in government service. They will make billions on the trading of carbon credits.

Anyway, here is what Doug Hornig of Casey Research has to say about it. Naturally, we will also learn in Doug’s essay how to profit from it.

(Hint: If you want to profit from investment newsletters, it helps to buy the right ones. Casey Research has a lot of the right ones.)

Be sure and take them up on the free special report, link at the end of the essay.

The Carbon Cap: The Newest Form of Taxation

By Doug Hornig, Editor, Casey Research

It’s possible that no concept in history has ever come so far, so fast, and with so little substance behind it, as “global warming.” Or, to be precise, anthropogenic global warming (AGW) – the kind caused by us puny humans rather than by that fireball that keeps the planet habitable.

We’re extraordinarily lucky. If present thinking is correct, the first single-celled living organisms may have appeared as much as 3½ billion years ago, and it would appear that once life arrived, it never went away. That’s a very long time for conditions to have remained favorable enough to keep the chain from breaking.

As the eons unspooled, Earth’s climate varied, sometimes wildly. It has been much hotter than it is today, and much colder. (One current theory holds that the average surface temperature has regularly oscillated between 120° and -50°F.) Nearly all of the changes have been due to variations, some of them cyclical, in the amount of solar radiation reaching the surface of the planet. Through it all, life endured, because of the existence of carbon.

Now, rather suddenly, carbon is the designated boogey man. Individually and collectively, we are told, we must work on reducing our “carbon footprint,” or else something awful is going to happen. The headlines are terrifying: we’ll have hellacious droughts, monster hurricanes, and entire cities disappearing beneath the waves.

Well, perhaps. In a climatic feedback system as complex as Earth’s, anything is possible. More likely, though, is that we’ll see none of the above. Or at least not because of anything humans do or fail to do.

The simple (yes, inconvenient) truth is that scientists don’t even know whether the planet is warming at all, let alone if AGW has any role in causing it. The data are inconclusive at best. Most of those dire predictions you’ve read are based upon computer modeling, and anyone who watches the nightly weather forecast knows how infallible that tends to be.

Yet the truth has not prevented the AGW theory from being presented to the public as fact. Its proponents have so captured the media that Al Gore’s Nobel Prize is a huge story, while the Manhattan Declaration of 2008 gets nary a mention in the press. The latter, endorsed by hundreds of prominent citizens, including two hundred climate scientists, concluded that “current plans to restrict anthropogenic CO₂ emissions are a dangerous misallocation of intellectual capital and resources that should be dedicated to solving humanity’s real and serious problems.”

Sadly, that misallocation is about to get a whole lot bigger. If the Obama administration has its way – and it is expected to, since there’s no meaningful opposition – carbon caps will soon be coming to every American town.

If you’re unfamiliar with the concept of a carbon cap, it’s simple. It’s a tax. The president wants to reduce per-capita U.S. carbon emissions to 14% below 2005 levels by 2020, and 83% by 2050. And he’s promoting this as a good idea by suggesting that it will pour $646 billion into federal coffers between 2012 and 2019, through government auctions of the rights to emit greenhouse gases. Those rights would be sold to energy companies, manufacturers, utilities, or anyone else who “pollutes” the air with carbon dioxide. And they could be traded.

Leave aside the question of whether reducing human carbon emissions is truly a valid goal; and whether we need another huge tax; and whether the government will do anything constructive with an infusion of our money, to the tune of nearly two-thirds of a trillion dollars. Instead, just consider the consequences.

The cost of everything will go up, as the affected businesses compensate for their lost revenue. If carbon credits are auctioned at the lower end of the projected range (between $13 and $20 a ton), estimates are that the average price of gasoline will jump by 12 cents a gallon and the average electricity bill by 7%.

Worse, though, is that the pain will be unevenly distributed. As the Detroit News editorialized, the cap-and-trade plan “is a giant dagger aimed at the nation’s heartland — particularly Michigan. It is a multi-billion-dollar tax hike on everything that Michigan does.”

That is, it penalizes states and regions with large manufacturing bases and coal dependence for electricity, and rewards places with larger populations but light industry and cleaner power plants. As Michael Morris, CEO of coal-heavy American Electric Power, put it: “It is a clear transfer of the middle part of the country’s wealth to the two coasts.” Small wonder that politicians from California and New England are such enthusiastic supporters.

For what to expect here, we can look to Europe, where cap-and-trade is firmly established. While it has worked, in the sense of lowering carbon emissions (though not by as much as anticipated), its effects have been stifling. For example, the Washington Post cited “the Dutch silicon carbide maker that calls itself the greenest such plant in the world, but now can’t afford to run full-time; the French cement workers who fear they’re going to lose jobs to Morocco, which doesn’t have to meet the European guidelines; and the German homeowners who pay 25 percent more for electricity than they did before – even as their utility companies earn record profits.”

This is what’s coming to your town, if Congress capitulates to the White House. The bill that will bring us cap-and-trade recently squeaked through the House with just a single vote to spare. It faces an uncertain future in the Senate, where opposition is stiff. Modifications surely will be made. But with Al Franken having cemented the Democratic super-majority, it’s a lock to pass in some form or other.

Ever-savvy, the market isn’t waiting. Although no cap is yet in place, carbon credits have already arrived. There’s even a place to trade them, the Chicago Climate Exchange (CCX), founded in 2003. And companies are busily buying and selling in anticipation.

How does it work? CCX’s website explains: “CCX emitting Members make a voluntary but legally binding commitment to meet annual GHG [greenhouse gas] emission reduction targets. Those who reduce below the targets have surplus allowances to sell or bank; those who emit above the targets comply by purchasing CCX Carbon Financial Instrument® (CFI®) contracts.”

In other words, some outfits are stocking up on purchased credits, against the day when they’ll be required by law. Others are speculating that the value of those credits will go up once the federal cap is in place. And some are making a lot of money simply by selling carbon reductions they’ve already made.

Among the players are expected names from the heavy industry and utilities sectors: DuPont, Ford, Reliant, American Electric Power, Potash Corp., Waste Management, and so on. But it’s a very long list, and on it are tech companies like IBM and Intel; retailers like Safeway; Miami-Dade County, Florida and Sacramento County, California; the University of Idaho and half a dozen other schools; even the Embassy of Denmark.

There’s no secret key to why so many want a piece of this action. It’s going to be a very, very big business. If European standards are applied to the U.S., we’re talking about a quarter-trillion dollars of credit trading a year.

Investors – if they’re well heeled enough and willing to assume a lot of risk — can participate directly in carbon credit trading. Or they can buy stock in the parent of CCX, which is publicly traded in London.

But there are other ways to profit from this unstoppable force.

For example, by investing in select junior exploration companies focused on alternative energies, oil, or uranium. But in these volatile times, it is vital to not only invest in the right companies but to use the right investment strategies. Like the 20-60-20 rule or the Casey Free Ride Formula described in our new, FREE special report Profiting in a New Era. Applying these tactics can make the difference between losing your shirt or winning big — click here to learn more.