A high price tag for families, businesses

Politico | By Bill Archer and Charles Stenholm

A year ago, debate over how to reduce U.S. carbon emissions reached a heated crescendo. Ultimately, a Senate proposal to implement a cap-and-trade system that would impose a limit, or “cap,” on the amount of carbon dioxide and other emissions was rejected. The high price tag was simply too much for lawmakers who would have to soon answer to affected businesses and constituents back home. Back then, the country was teetering on the brink of a recession. Today, we’re neck deep in one.

American families are now focused on keeping their jobs, recovering the remnants of their retirement plans and making it to their next paycheck. As such, the timing could not be worse for another bite at this bitter apple. Yet some of our former House colleagues are determined to do just that with legislation to impose a cap-and-trade system, which will be voted on in committee this week. While the end goals of the legislation may be well-intentioned, the economic consequences for consumers and workers will be hard to swallow any way they slice it.

Firms and industries that cut their emissions below preset levels ostensibly would be able to “trade” credits to firms or industries that cannot meet their targets. Those that cannot, including many energy-intensive industries, would be forced to purchase them. The cost of these permits would be passed on to consumers in the form of higher prices. Others may simply forgo the option by shutting plants or moving production overseas.

As the clock ticks before the final vote, last-minute deals on free credits for carbon-intensive states are being offered in exchange for member votes — a sign that should worry the public. Rightly so, since the vast majority of man-made greenhouse-gas emissions come from the use of fossil fuels, which account for 85 percent of America’s energy generation. This includes the gas in our cars and the electricity that lights our homes, hospitals and schools.

Technology to curb emissions is far from proven but hopeful in many aspects. However, sacrificing economic activity through a de facto tax on energy use is simply not a viable option, especially in view of U.S. population growth estimates and the corresponding rise expected in energy demand. American Council for Capital Formation chief economist. Margo Thorning notes that each 1 percent increase in U.S. gross domestic product is accompanied by a 0.3 percent increase in energy use. To this end, the U.S. Department of Energy projects that the U.S. will need approximately 13 percent more energy by 2030 to accommodate our growing population, higher levels of employment and economic activity. The logical questions for our former colleagues who must cast votes on a cap-and-trade system is this: What is the real cost, and what is the actual benefit?

A new study released this week by The Heritage Foundation reported eerily similar findings to an ACCF study conducted on the bill that failed in the Senate last year. Assessing the economic impact of the Waxman-Markey climate bill, Heritage found profound, adverse economic impacts lie in store for businesses, consumers and governments.

It projects that by 2035, the bill would destroy 1.11 million jobs on average (with peak years seeing unemployment rise by someover 2.48 million jobs); raise electricity rates 90 percent after adjusting for inflation; raise inflation-adjusted gasoline prices by 74 percent; raise natural gas prices by 55 percent; and reduce aggregate GDP by $9.6 trillion.

Sadly, the economic pain experienced under a cap-and-trade regime will most likely result in negligible environmental gain. According to the new Council of Economic Advisers’ report to the president, global concentrations of CO2 in 2100 will be almost unaffected by U.S. emission reductions unless developing countries like China and India participate. If the U.S. agrees to curb domestic emissions at a high economic cost without a guarantee from other countries around the globe, any environmental benefit would still evaporate.

Curbing global greenhouse gases is worthy in its intent, but a system that will tax and penalize American families and businesses during these uniquely tough economic times is simply not the right approach.

Bill Archer, a former Republican congressman from Texas, served as chairman of the House Ways and Means Committee from 1995 to 2001. Charles Stenholm, a former Democratic congressman from Texas, was ranking member of the House Agriculture Committee and co-founder of the Blue Dog Coalition. Both serve as members of the board of directors for the American Council of Capital Formation.