CBO Grossly Underestimates Costs of Cap and Trade

Nicolas Loris /

Last week, the Congressional Budget Office released their analysis of the Waxman-Markey climate change bill that had proponents of the bill claiming we could save the planet for just $175 per household. That was the figure CBO estimated cap and trade would cost households in 2020, which “includes the cost of restructuring the production and use of energy and of payments made to foreign entities under the program, but it does not include the economic benefits and other benefits of the reduction in greenhouse gas emissions and the associated slowing of climate change.”

The trouble with the analysis is that costs are grossly underestimated. The trouble with legislation is that it will have virtually no impact on climate.

Overall, there are a number of basic problems with CBO’s analysis:

• Their allowance cost numbers don’t add up. They say the allowance price will be $28. Since there are 5.056 billion tons of CO2 equivalent in the cap that year, that implies a $141 billion gross cost. They list 91.4 (see table one). In the CBO’s June 5 analysis of Waxman-Markey, they projected allowance revenues of $119.7 billion, 129.7 billion, $136 billion, $145.6 billion, and $152.9 billion for the years 2015 to 2019. It’s hard to believe that the next number in that series would be $91.4 billion.