Jun
24
Last week, the CBO released an analysis of the costs incurred by the consumer in relation to Barack Obama’s Waxman-Markey Cap and Trade Bill that is, at present in committee stage in the House but is expected to hit the floor on Friday.
Previous reports of how much Cap and Trade would cost the consumer, approximately $1,600 per household has been dramatically reduced, and now the CBO are projecting that costs to consumers will only be $175 per household per year. So why the discrepancy? Well, the initial analysis didn’t take into account rebates, either direct to the consumer or to businesses.
Taking into the account the gross cost associated with complying with the cap ($110 billion); the allowance value that would flow back to U.S. households ($85 billion), both in the form of direct relief and indirectly through allocations to businesses and governments (all of which would eventually benefit households in people’s various roles as consumers, workers, shareholders, and taxpayers); and the additional transfers and costs discussed above (providing net benefits of $2.7 billion), the net economywide cost of the GHG cap-and-trade program would be about $22 billion—or about $175 per household.
So this is good news, not only for American users of energy, but also for Obama, who was caught at the tail end of the election saying:
“Under my plan of a cap and trade system electricity rates would necessarily skyrocket. Businesses would have to retrofit their operations. That will cost money. They will pass that cost onto consumers.”
Now I’m not going to question the CBO, an independent body whose analysis I’ve used to hammer Obama before over their projections of Obama’s deficits. However, there are some causes for concern in the CBO report.
Firstly, this report presupposes that the rebates to consumers, which the government can afford because of the auctioning off of energy allowances, will be passed on to the consumer on a 1:1 basis. I cannot imagine that any government who has a new source of income will ring-fence all of it to pass back to the consumer. Selling carbon allowances will net the government in the region of $130 billion to $140 billion, a very tempting pot for any government, nevermind a spend happy one like this one.
Secondly, as The Heritage Foundation report in their analysis of this report, the CBO fail to make some fairly important assumptions:
Most problematic is their complete omission of economic damage from restricting energy use. Footnote three on page four reads, “The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap. The reduction in GDP would also include indirect general equilibrium effects, such as changes in the labor supply resulting from reductions in real wages and potential reductions in the productivity of capital and labor.” That’s a pretty big chunk of change to ignore. In The Heritage Foundation’s analysis of the Waxman-Markey climate change legislation, the GDP hit in 2020 was $161 billion (2009 dollars). For a family of four, that is $1,870 that they ignore.
The report also has one marked assumption that seems to deny the normal dynamic of political life, namely that the government won’t try to curb inflation:
The distribution of the gross cost of complying with the policy would be quite different if the price level did not increase as a result of the cap—if, for example, the Federal Reserve adjusted monetary policy to prevent such an increase. In that case, the compliance costs would fall on workers and investors in the form of lower wages and profits.
“lower wages and profits” seems to me to be a particular negative for this proposal, but then maybe that’s just me.
So that looks at the Waxman-Markey bill from a cost to consumer position. But what about the cost to the economy.
The CBO addresses this in passing, noting that their analysis of the cost to the consumer does not include the transitional costs that will effect employers (and employees) as they adjust to reducing their emissions:
The measure of costs described above reflects the costs that would occur once the economy had adjusted to the change in the relative prices of goods and services. It does not include the costs that some current investors and workers in sectors of the economy that produce energy and energy-intensive goods and services would incur as the economy moved away from the use of fossil fuels.
Thus, investors would see the value of some stocks decline, and workers would face higher risk of unemployment as jobs in some sectors were eliminated.
Some of those job losses might be mitigated by an increase in green technology investment but this doesn’t fit very well with the experiences of Spain who tried the transition from older to greener technologies – for every green job created, 2.2 jobs were lost in the old economy. So there are great risks to employment from this bill. That seems somewhat foolish at a time of recession and already high unemployment.
I don’t view this bill as entirely negative, there are some things to like. Firstly, a reduction on the use of fossil fuels will lessen America’s dependence on foreign oil (a key plank of the GOP party it should be noted). Secondly, transitioning to newer technologies and retiring dirtier and less efficient older technologies is a normal part of economic development. However, the timing of this bill is all wrong it seems to me. Passing it once America is through a recession would make much more sense, there is a lot of potential for short term pain (unemployment, lower wages, lower profits) before any possibility of long term gain.
And as for that long term gain, doesn’t the key argument become “any pain is worthwhile if this bill helps lessen future climate change?”. According to climatologist Chip Knappenberger, the effect on global temperature in 2050 that this bill results in will be nine hundreths of one degree fahrenheit. Gosh!!!!
Comments
One Response to “Climate Change Bill Not So Costly. Possibly.”
Leave a Reply
I find it alarming when people who voted for Obama say they are shocked that he is a far-left socialist…weren’t they listening to him during the two long years before the election?
Well…they need to go back and listen to him now when he said that electricity rates will necessarily skyrocket under cap and trade… which really means ‘cap and tax’.
Right now, the Congressional Democrats headed by Senator ‘Deathhead’ are trying to push this through as quickly as possible and are lying through their teeth. They are playing with the numbers and the American people will be the ones left holding the empty bag.
Let’s hope that we can stop this abomination of a tax bill in its tracks…it has absolutely nothing to do with the environment…it is only one more way to gouge the American taxpayers out of more of their hard earned money.