Yesterday, Senators John Kerry (D-MA), Joseph Lieberman (I-CT) and Lindsey Graham (R-SC) unveiled an outline of their cap-and-trade proposal. Interestingly, their version of a national tax on American energy is hard to distinguish from earlier proposals such as the House-passed Waxman-Markey or the Senate committee-passed Boxer-Kerry.
All of these proposals have one thing in common: they hurt the economy. However, the Senators Kerry, Lieberman and Graham take great care in their 5-page document to detail the benefits of their proposal, and implicitly suggest why it is superior to each. Let’s debunk the major claims.
Claim: Better jobs, more manufacturing jobs, cleaner air.
A Heritage analysis of Waxman-Markey found that net job losses in 2012 could approach 1.9 million. The net manufacturing employment decreases by nearly 400,000 between 2012 and 2035, including hitting a high of 1.38 million lost jobs in 2035. Raising the cost of energy is bound to create a worse job climate, not a better one. Other organizations agree. Specifically, the Brooking Institute modeled a general cap and trade system and found that GDP in the United States would be lower by 2.5 percent in 2050, and unemployment would be 0.5 percent higher (1.7 million fewer jobs) in the first decade below the baseline or without cap and trade. The total tax revenue generated by 2050 would be $9 trillion. Even worse, there would be no environmental benefit. EPA Administrator Lisa Jackson acknowledged, “U.S. action alone will not impact world CO2 levels.”
Claim: Securing energy independence.
The need to secure “energy independence” and “ending our addiction to foreign oil” is a commonly made claim by politicians on the left and the right, but achieving energy independence is not a cause for concern nor should it be a driver for a cap and trade system. Cap and trade will not make us more energy independent by pumping billions of dollars into subsidies for wind, solar and other renewable energy sources because even after decades of handouts they have not been able to compete with more traditional, reliable energy sources. There is no low cost alternative for fossil fuels or a way we can transform our energy sector overnight without paying a hefty price. Adding provisions that subsidize nuclear plants that won’t be built given the current status quo or support coal and drilling measures that won’t occur because the bill’s other provisions will force it to be costly do not change the fact that this bill is an economic disaster. Attempting to achieve energy independence costs the economy more than just higher energy prices by diverting resources from more valuable uses to less valuable ones.
Claim: Creating regulatory predictability.
The Senators said, “Monday’s endangerment finding by the Environmental Protection Agency (EPA) underscores the importance of Congressional action to address greenhouse gas emissions before the EPA moves unilaterally.” Perhaps they missed Jackson’s statement on Wednesday in Copenhagen. She said, “This is not an ‘either-or’ moment. It’s a ‘both-and’ moment.” In other words, the Obama Administration does not want cap-and-trade to preempt their regulatory authority over the entire economy. Regulatory certainty is a good thing but not when it piles regulation on top of regulation that will make it harder for businesses to compete with businesses in other countries that do not face similar carbon constraints.
Claim: Protecting consumers.
Neither cap and trade nor any of its variations can protect consumers. The whole reason for a cap and trade system is to drive up energy prices high enough in order for people to use less. Despite claims that consumers will eventually save money on utility bills, the net effect is that consumers still pay more for energy and income and savings will fall. Proponents of cap and trade legislation say that rebating allowance revenue from the carbon caps to the consumers will offset the higher energy costs. Never mind the fact that the Waxman-Markey bill hands much of the money to businesses, whether the rebate checks would offset the rise in energy costs remains to be seen. But this scenario is highly unlikely to help most Americans. As carbon prices rise, so do the rebate checks, but so do the energy prices consumers must pay. Further, rebates or not, the higher energy prices would reduce economic activity by forcing businesses to cut costs elsewhere, possibly by reducing their workforce, and thus doing damage that no check would cover.
The bottom line: Adding a new Member of Congress or two to sponsor cap and trade legislation doesn’t change the outcome. This is not a jobs bill, nor is it an economic stimulus or a pollution reduction bill. It’s a net jobs destroyer that will cost American consumers in terms of higher energy prices and lost income for years to come. And the public isn’t buying it no matter how it’s sold.
Nick Loris co-authored this post.