Why Environmentalists and Energy Producers Prefer Cap and Trade

Conn Carroll / April 09, 2008

The Politico has a story today on the Warner/Lieberman cap-and-trade bill expected to win floor consideration later this spring. The article focuses on whether or not the bill should include a cap on the price of carbon credits, and whether or not credits should be given away, or auctioned off to companies. If the cap and trade system is to be in any way effective (and so far Europe’s cap and trade system has been a complete failure), then the issues covered in the Politico article are irrelevant. Whether they are given away or auctioned off, any costs born by manufactures and utility companies will be passed on to the American consumer.

Cap and trade is nothing more than an energy tax in disguise. It works by reducing the demand for energy by increasing its price. It is a regressive tax, as low-income households spend a larger share of their income on energy. The genius of cap-and-trade as opposed to an honest carbon tax, is that the tax is hidden. Instead of a line on a home heating bill itemizing the tax, cap-and-trade hides the costs of reducing carbon emissions through complex transactions that the public never sees. The costs to the economy are real. Heritage calculations show under the Warner/Lieberman bill:

• Total GDP (adjusted for inflation) losses are at least $1.5 trillion and realistically could grow to $4.8 trillion by 2030.
• Single-year GDP losses hit at least $136 billion and realistically could exceed $400 billion.
• Job losses exceed one-half million annually before 2030 and may approach one million in some years.
• The annual cost of emission permits to energy users will be at least $390 billion by 202 and could exceed $690 billion by 2030. To put these numbers in perspective, taxpayers spent $43 billion on the Department of Homeland Security and $549 billion on the Department of Defense in 2007.