Costly cap and trade proposal deserves scrutiny
New Mexico Business Weekly | With the flood of legislation passing through Congress this year, we run the risk of overlooking the profound impact some of these bills can have on our national economy and our personal finances. The complexities of massive bailouts and stimulus packages and the contentious nature of the health care reform debate have exhausted the patience of those outside the beltway.
It’s vital that the debate over cap and trade not be lost in the fray. This legislation could cost America millions of jobs while driving up energy prices and exacerbating household expenses.
Energy legislation before Congress could cost New Mexico between 9,000 and 12,000 jobs and lower the state’s Gross State Product (GSP) by $3.4 to $4.6 billion by 2030, according to the American Council for Capital Formation’s recent study in conjunction with the National Association of Manufacturers. Most energy prices would increase, causing a ripple effect that would impose a significant financial burden on households.
The proposed legislation, the American Clean Energy and Security Act of 2009 — better known as the Waxman-Markey bill — barely passed the U.S. House of Representatives earlier this summer by a slim 219-212 margin. The U.S. Senate was expected to release its version of this climate bill later this September.
Much already has been written about the problems of the cap and trade scheme upon which this legislation is based. Establishing the program will require, in essence, the creation of a market for carbon that would be easy pickings for manipulation by Wall Street.
In order to gain the votes necessary for passage in the House, legislators promised free carbon permits to favored industries back home, establishing a new beachhead for pork despite promises by the new administration.
The real cost will be in jobs and energy pricing, according to the “Economic Impact of the Waxman-Markey American Clean Energy and Security Act.”
The study found that America could lose 1.8 million to 2.4 million jobs by 2030 as emission targets tighten.
These job losses will be caused by the loss of jobs in the industrial and other sectors of the U.S. economy, due to rising energy prices, the cost of complying with the required emissions cuts and competition from overseas manufacturers with lower energy costs.
Within the U.S., most energy costs would rise under Waxman-Markey, particularly coal, oil and natural gas. By 2030, gasoline prices would increase between 20 and 26.1 percent, natural gas by 56.3 to 73.5 percent and electricity by up to 50 percent, according to the study.
As a result of these higher prices, the average American household would lose between $730 and $1,248 in disposable income by 2030. Our study found that the Waxman-Markey bill would hit low-income families hardest because a greater portion of their resources is spent on energy and other goods. The impact would be similar on the elderly and others on fixed incomes.
The big picture isn’t any better. During the 2012 to 2030 period, cumulative Gross Domestic Product (GDP) losses would range from $2.2 trillion to $3.1 trillion.
Adopting shortsighted legislation, like Waxman-Markey, that simply drives jobs and investment off our shores, resulting in less efficient and less clean use of energy, is not the solution.
Meaningful action to reduce the impact of climate change can be pursued without creating the deleterious economic impacts of the Waxman-Markey bill. In fact, analyzing costs and benefits concurrently promotes environmental progress by ensuring that scarce global resources are used in an efficient manner.
If the U.S. does put a price on carbon emissions, a more efficient solution would be a straightforward tax on carbon, combined with a series of complimentary policy changes.
These include updating the tax code to reduce the cost of U.S. energy investment, the removal of barriers to the developing world’s access to energy and clean technology, and the promotion of truly global solutions that focus on economic growth and technology transfer to other major emitters.
Despite the barrage of important legislation before our elected representatives, we must not be distracted from the inherent problems with cap and trade and from finding a real solution to reducing our emissions.