Cap & Trade: Climate Change Solver or Economy Killer?

Climate change solver or economy killer – these are the two sides to the debate on a cap-and-trade system. While it might be easy for many to get on board with reducing emissions, swallowing the costs of doing so is a different story.

While the latest version of the bill eliminates permit auctions and has the government handing out 2/3 of permits for free, the basic concept of the system remains unchanged. The plan is for the government to set a cap on emissions output for the country and issue permits to companies allowing them to release a certain amount of CO2.

Proponents of cap-and-trade say the system will cut emissions by 83% below 2005 levels while “keeping consumers whole”. Unfortunately, the facts are not on their side.

On May 7, Douglas Elmendorf, a Director at the Congressional Budget Office, testified that a 15% cut in emissions via a cap-and-trade system would cost the average family $1,600 a year.

A study by The Heritage Foundation found that cap-and-trade would:

• Reduce aggregate gross domestic product (GDP) by $ 550 billion in 2030;
• Destroy 1,105,000 jobs on average, with peak years seeing unemployment rise by over 2,479,000 jobs;
• Reduce an average household’s disposable income by $879 in 2030;
• Raise electricity rates 90 percent after adjusting for inflation;
• Raise inflation-adjusted gasoline prices by 74 percent;
• Raise residential natural gas prices by 55 percent;
• Raise an average family’s annual energy bill by $1,500;and
• Increase inflation-adjusted federal debt by 26 percent, or $29,150 additional federal debt per person, again after adjusting for inflation.

Indeed, all signs point to increased taxes as a result of a cap-and-trade system for every individual and family that owns and drives a car, takes public transportation, consumes electricity or buys a product or engages in an activity that releases CO2 emissions.

Given the economic climate and the lack of a consensus on global warming, these facts should give us pause. After all, the facts indicate that cap-and-trade is just a convoluted phrase behind which lies another massive tax program – one that will affect all Americans. But, it seems that the administration’s flawed reasoning that we are facing an economic downturn because we have ignored health care and environmental problems has become fully entrenched in D.C. and in the American populace. And given that the President’s budget counts on incoming revenue from the sale of permits, it seems likely that some version of this bill will pass — unless conservatives manage to pull together in a campaign to call this bill what it really is, a tax hike for all.

*Originally published May 24, 2009 on the American Issues Project Blog, here.

Tags: Cap-and-Trade, global warming, taxes