Cap and Trade: A New Tax on Energy from ALEC

Cap and Trade: A New Tax on Energy


ALEC Opposes Cap & Trade Bill:

House Energy and Commerce Committee passed the American Clean Energy and Security Act of 2009

 May 22, 2009

 ( Washington, DC)— The American Legislative Exchange Council with its 2,000 state legislators from fifty states opposes the vote in favor of the American Clean Energy and Security Act of 2009, H.R. 2454, taken last night by the Energy and Commerce Committee of the U.S. House of Representatives.

 This legislation will raise energy prices on American consumers, will cause job loss and will put the United States at a competitive disadvantage in the global economy. H.R. 2454 imposes for the first time in the U.S. a cap and trade system for carbon dioxide that promises to vastly expand power in Washington and to plague America’s economy with fraud, waste and inefficiency. 

Recent analysis of the legislation by respected and independent CRA International for the National Black Chamber of Commerce concluded that it would cost the U.S. economy $350 billion and 2.3 million to 2.7 million jobs each year through 2030. This is after taking into account the “green” jobs proponents promise to create. 

“The zeal to reduce carbon dioxide emissions at any cost at a time when so many American families are struggling economically is disappointing,” said Alan Smith, ALEC’s executive director. “And let us remember that reducing CO2 emissions is no end in itself,” he continued. “At the end of this exercise in self-impoverishment we may find we have produced no environmental benefit whatsoever.”  

The bill also includes a federal standard for renewable energy use for electricity, an unnecessary and unfair mandate on states. States have developed their own policies on renewable energy and this one-size-fits-all approach will benefit some states at the expense of others because of vast differences in states’ natural resources and conditions.


LATEST NEWS

 On May 21, 2009 the House Energy and Commerce Committee passed the American Clean Energy and Security Act of 2009 also known as the Waxman-Markey bill (co-sponsors Rep. Henry Waxman, D-CA; Rep. Ed Markey, D-MA).  This legislation calls for an 83 percent reduction of carbon dioxide emissions below 2005 levels by 2050.  Like President Obama’s proposal, this plan is more aggressive than the Lieberman-Warner plan and would likely impose greater costs than those detailed below.  

For example, a recent study by CRA International for the National Black Chamber of Commerce concluded the legislation would cost the U.S. economy $350 billion and 2.3 million to 2.7 million jobs each year from now to 2030.  This is a net loss meaning they took into account all the “green” jobs the bill promises to create.  To read that study, click here

For a summary of the bill, click here.

 To view recent hearings on the bill including testimony from former Vice President Al Gore and former Speaker of the House Newt Gingrich as well as many others, visit CSPAN’s video library

 For more on the expected economic impact, see the Comprehensive Staff Analysis report of the U.S. House Committee on Oversight and Government Reform.

 To learn more about how the legislation would affect agriculture and rural communities, click here.

 For more on the viewpoints of proponents and the sponsors of the bill, click here.


 Introduction

Will America adopt a cap and trade program for greenhouse gases?  Congress failed to pass legislation last year, but the Environmental Protection Agency (EPA) moved forward anyway with its plan to regulate greenhouse gases under the framework of the Clean Air Act (CAA).  This year, the EPA is very close to taking the necessary legal steps to begin implementing its plan with the President’s encouragement despite agreement among climate action proponents and opponents alike that the CAA is ill-suited to regulate greenhouse gases.

 

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On another front, the President released a framework for his own cap and trade program in his budget plan that he estimates will raise $646 billion in new government revenues.  In anticipation of this presidential priority, Congressional leaders in the House and Senate are preparing to consider legislation soon.  Meanwhile a few states have adopted their own cap and trade programs and many others are making preparations to do so.  The result is a looming patchwork development that some are pointing to as justification for a national program.  As the United States prepares to participate in international talks on greenhouse gases in Copenhagen this December, climate action proponents hope to arrive with a national policy in hand.  

The pressure is mounting on many fronts, but the big question remains: what will this cost us and can we afford it?  More than eighty percent of Americans say the economy and jobs are top priorities compared to only thirty percent who believe global warming is a top priority.  America’s economic crisis is being used as an opportunity to experiment with new taxes on businesses and families to satisfy the demands of groups with extreme agendas.  The relationship between affordable energy and economic prosperity is indisputable and a cap and trade program carries a hefty and long-term price tag on energy.  Businesses will close, jobs will be lost and everyone will pay more for energy for years to come.  

What is Cap and Trade?

A cap and trade policy for greenhouse gases would limit the nation’s greenhouse gas emissions by issuing or auctioning a limited number of permits to those who emit.  The purpose of cap and trade is not simply to reduce greenhouse gases but also to raise energy prices so that conventional sources of energy lose their natural cost advantages over alternatives.  The President’s Office of Management and Budget Director Peter Orszag testified before Congress that “price increases would be essential to the success of a cap and trade program.” For this and other reasons, many opponents are referring to cap and trade proposals as “cap and tax” proposals since the effect would be a new tax on Americans’ energy.  The cap can often be expressed in terms of a percentage reduction from some baseline year’s emissions by a certain deadline.  For example, the Lieberman-Warner legislation that failed to pass the Senate in 2008 called for a 70 percent reduction in emissions below 2005 levels by 2050.  The President’s new plan goes further requiring an 83 percent reduction in emissions below 2005 levels by 2050.  Much of the economic impact research available below is based on the Lieberman-Warner plan.  Analysis of the President’s more aggressive approach cannot be undertaken at this time since details have not yet been announced.  However, you can expect the economic impacts of the President’s plan to be worse than Lieberman-Warner since it requires even deeper cuts in emissions.

 Another element worth noting in a cap and trade proposal is the mechanism by which permits will be distributed.  They can be auctioned to the highest bidder or they can be allotted to emitters or both.  For example, the Lieberman-Warner proposal would have allotted 40 percent of permits to emitters and auctioned the remaining 60 percent.  The President calls for the auction of 100 percent of permits in his plan.  This represents an immediate and upfront tax on all emissions.

 Does it work?

Europe implemented a cap and trade program for greenhouse gases known as the Emissions Trading Scheme in 2005.  It has failed to control growth in greenhouse gases and it has also failed to predict future energy markets crucial to its success.  The result is all pain and no gain.

 Northeastern states in the U.S. began auctioning credits earlier this year as part of their Regional Greenhouse Gas Initiative.   It’s been widely reported, however, that the permits have overshot actual emissions highlighting the difficulties associated with predicting future markets through political mechanisms.

 Proponents often point to acid rain as an example of an effective use of cap and trade policy.  This is not a useful comparison, however, since sulfur dioxide is nowhere near as ubiquitous as greenhouse gases and technologies designed to mitigate sulfur dioxide were available on a commercial scale when the acid rain cap and trade program was adopted.  Control technologies for greenhouse gases such as carbon capture and storage are still in the research and development stage and no one knows for sure what the timeline will be for large-scale commercial viability.  Instituting a cap and trade program that depends on such critical uncertainties is very risky.  

 What will it cost?

A cap and trade program carries many direct and indirect costs.  Below you will find various costs expressed in jobs, taxes, energy prices and economic growth.  Again, these numbers are mostly based on the Lieberman-Warner plan.  The President’s new plan is actually more aggressive than the plan that generated the following estimates.

 Job Losses

  • National Association of Manufacturers (NAM) estimates a net loss of 3 to 4 million jobs in 2030 (view by state).
  • The Heritage Foundation estimates annual job losses as high as 1 million (view by state).

 Taxes

  • Massachusetts Institute of Technology estimates that a family of four could expect to pay as much as $4,560 in additional taxes in 2015.
  • NAM estimates the burden on households could be as much as $6,752 per year by 2030.

 Energy Prices

  • Electricity prices are estimated by NAM to rise between 101 percent and 129 percent in 2030
  • Gas prices are estimated by EPA to rise by as much as $1.60 per gallon
  • Natural Gas prices would more than double in 2030 according to NAM

 Economic Growth

  • The Heritage Foundation estimates a decline in GDP of $1.5 to $4.8 trillion by 2030
  • EPA estimates a decline in GDP by 2050 of nearly $3 trillion

 Conclusion

The purpose of cap and trade is to raise energy prices.  All estimates of previous U.S. proposals bear this out.  The question is whether Americans are willing and able to pick up the tab.  Those who believe emissions reductions are worth any cost are gambling with the futures of America’s families at a time when those futures are uncertain.  The high cost of cap and trade will not be absorbed by business.  It will be felt by every consumer and millions of workers.  States that advance cap and trade programs or participate in regional initiatives will have negligible impact on temperature but far reaching negative impact on the economic prosperity of their citizens.  In the coming months, if Congress advances new legislation for cap and trade, Americans must be asking the big questions: What will it cost and will it be worth it?

 View the studies here:

The Heritage Foundation study:

http://www.heritage.org/Research/EnergyandEnvironment/cda08-02.cfm

 The NAM study:

http://www.accf.org/publications.php?pubID=109

 NAM study State-by-State:

http://www.accf.org/media/dynamic/2/media_270.pdf

 MIT study:

http://web.mit.edu/globalchange/www/MITJPSPGC_Rpt146_AppendixD.pdf

 EPA study:

http://www.epa.gov/climatechange/economics/economicanalyses.html

 The Pew Center poll:

http://people-press.org/report/485/economy-top-policy-priority

 Other resources:

Institute for Energy Research: Eight Reasons Why Cap and Trade Harms the Economy and Reduces Jobs

http://www.instituteforenergyresearch.org/wp-content/uploads/2009/03/Cap_and_trade_Primer.pdf

 U.S. Chamber of Commerce on EPA’s plan to regulate greenhouse gases

http://www.uschamber.com/assets/env/regulatory_burden0809.pdf

 Science and Public Policy Institute: State climate profiles estimating impact of emissions reductions on temperature:

http://scienceandpublicpolicy.org/state_climate_profiles.html

For more information contact Matt Warner, director of ALEC’s Natural Resources Task Force at mwarner@alec.org.

SOURCE: HERE Use with permission.