There have been a lot of numbers floating around measuring the costs of cap and trade. For instance, a study by MIT professor John Reilly shows a carbon cap and trade would cost the average American household $3,900 a year. $800 of that figure comes from, according to Reilly, “the cost to the economy [that] involves all those actions people have to take to reduce their use of fossil fuels or find ways to use them without releasing [Green House Gases].”
Our analysis shows it will cost the average family closer to $4,300 per year. Here’s how:
Our $1,500 number is just the direct impact of household energy bills. Your electricity bill. Your natural gas bill. Your home heating oil bill. And of course, the amount of gas you use in your tank. The increased cost of your direct energy use is $1500 per year.
But the direct tax on household energy use is just the beginning. The energy tax also hits producers. As the higher production costs ripple through the economy the household pocketbooks get hit again and again. When all the tax impacts have been added up, the average per-family-of-four costs rise by $4,300 per year. In the year 2035 alone the cost is $8,276. And the costs per family for the whole energy tax aggregated from 2012 to 2035 is $116,680. And this doesn’t even include the impact of the 844,000 lost jobs.
But just about everything we produce uses energy. As energy prices increase, those costs will be passed onto the consumer and reflected in the higher prices we pay for products. Higher energy prices also result in a slower economy which means less production, higher unemployment and reduced income. Families will suffer directly and indirectly from a higher energy tax.
As President Obama warned us on his campaign trail, electricity prices will “necessarily skyrocket.” So will everything else, except for our income and standard of living.
Senior Policy Analyst in Energy Economics and Climate Change David Kreutzer co-authored this post.