Make-believe world of cap and trade by Vincent Carroll

Today’s article of the day comes from the Denver Post:

Don’t worry, this shouldn’t hurt. In fact, you won’t feel a thing. So goes the refrain of those pushing for passage of a climate bill regulating greenhouse gas emissions. Just what do they think we’re smoking?

A crackdown on greenhouse gases should involve “no cost to the consumer,” declared House Speaker Nancy Pelosi the other day — this from a leading supporter of the legislation. As if one fanciful pledge weren’t enough, the California Democrat also insisted that it would be wrong to pass a bill “that was a penalty to some states.”

Meanwhile, Energy Secretary Steven Chu told a congressional hearing that “in today’s economic climate, it would be completely unwise to want to increase the price of gasoline.” Trouble is, Chu is a climate-bill enthusiast, too — and the purpose of the cap-and-trade legislation that he and his boss, President Obama, favor is to raise the price of fossil fuels. Refiners will be one of the hardest-hit segments of manufacturing.

Two years ago, the Congressional Budget Office forecast that if climate legislation were enacted, low-income households would experience a 3.3 percent drop in income from higher prices associated with a 15 percent cut in carbon dioxide emissions, with middle-income households losing 2.8 percent. (The Waxman-Markey climate bill calls for cutting greenhouse-gas emissions by 20 percent by 2020.)

More recently, the CBO estimated that “the price increases resulting from a 15 percent cut in CO2 emissions could cost the average household roughly $1,600 (in 2006 dollars),” with the greatest impact “relative to income, on lower-income households.”

To be sure, the Environmental Protection Agency recently weighed in with an estimate of $98 to $140 per household annually after factoring in consumer rebates that the agency assumes will occur. But the EPA’s analysis is curious in several respects. As University of Colorado Professor Roger Pielke Jr. pointed out on his Prometheus science policy blog, the agency assumed the economy would grow by 2.5 percent from 2010 to 2019 — well below the administration’s estimate of 3.3 percent growth in its budget projections. The result: $1.22 trillion disappears from the economy, or about $11,000 per household. “A lower GDP means fewer emissions,” Pielke explained. “It also means that needed efficiency gains are smaller to meet the same targets.”

Meanwhile, Pielke noted, “The EPA analysis of the Waxman-Markey bill shows clearly that the bill increases the costs of gasoline … . So if Chu really believes that it would be unwise to raise the price of gasoline, then he is not a fan of cap and trade.”

How could a hurried-up makeover of the energy economy not significantly hike consumer prices or penalize some states compared to others? If cap and trade doesn’t do those things, in fact, it’s hard to see the point. Isn’t the program supposed to prod consumers and industry to alter their use of energy, as well as spur innovation? Admittedly, that prospect involves what Robert Samuelson calls “much economic make-believe” — the conviction, for example, that “new supplies of ‘clean energy’ magically materialize” as needed.

Cheerleaders of climate legislation know they’re playing with fire. Who knows how voters will react if they’re told the truth? The last thing politicians want is for Americans to read articles whose opening lines are like those that appeared in last Thursday’s New York Times: “With climate legislation knocking at the door, American factory workers have every right to be shaking in their work boots . . . . A price on carbon would put even more pressure on manufacturers, some of the biggest energy users in the country.”

The article explained how a coalition of “industry, union and environmentalist stakeholders” propose to save industrial jobs by offering manufacturers (in steel, paper and chemicals, for example) free emission permits until they can “devise new technologies” that would allow them to compete with their global rivals.

More economic make-believe? Don’t dare say it. After all, this is cost-free legislation.

E-mail Vincent Carroll at vcarroll@denverpost.com.

Advertisements
Published in: on April 29, 2009 at 8:05 pm  Leave a Comment  
Tags: , , , , , ,

The URI to TrackBack this entry is: https://pccapitalist.wordpress.com/2009/04/29/make-believe-world-of-cap-and-trade-by-vincent-carroll/trackback/

RSS feed for comments on this post.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: