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'Cap and trade' blows roof off spending

Created on April 1, 2009

'Cap and trade' blows roof off spending

Government's 'Cap and Tax' Threatens to Hobble Business, Raise Prices

By Ken McIntyre

The energy policies outlined in President Barack Obama's budget blueprint would sap power from the economy while adding hundreds of dollars a year to household expenses. If the president wants to make good on his promise to help the middle class, he should reject ideas that cost Americans more money, limit their access to energy resources and provide little, if any, environmental benefit.

"By far the most onerous element of President Obama's budget is his cap-and-trade proposal to reduce carbon emissions," Ben Lieberman, The Heritage Foundation's senior energy analyst, writes in a new paper. "If enacted by Congress, it could produce one of the largest tax hikes in American history."

Proponents may call it "cap and trade," but "cap and tax" is more accurate. The idea would have the federal government drain $1.6 trillion to $1.9 trillion from American businesses from 2012 through 2019, easily double the $646 billion estimate in the blueprint, according to calculations by Heritage's Center for Data Analysis. In turn, businesses would pass along these losses to consumers in the form of higher prices.

For perspective: $1.9 trillion is more than half what America spent to fight World War II, adjusted for inflation. It's 10 times the cost of Hurricane Katrina. It's almost as much as combined spending on the New Deal, space exploration and the Vietnam War.

"Although the Obama administration's blueprint euphemistically refers to this money as 'climate revenue,' in reality it is an energy tax that would force consumers to pay higher energy prices," Lieberman writes in a paper co-authored with research assistant Nicolas Loris. "The plan may be intended to reduce greenhouse gases, but actually it would kill jobs and devastate the economy."

Obama proposes to reduce emissions of carbon dioxide 14 percent below 2005 levels by 2020, and 83 percent below those levels by 2050. The program would auction "carbon emission credits," then spend hundreds of billions in revenue on health care and other programs.

The president's proposal to spend $150 billion on "clean energy" technologies is "old, tired thinking," Lieberman and Loris say, adding:"The notion of government investing in clean energy technologies through tax breaks, incentives and subsidies is tantamount to Washington picking winners and losers. It penalizes successful sources of energy, which Americans use every day, to subsidize unsuccessful ones."

The Department of Energy's budget, set to jump by $10 billion to $34 billion, includes expanded subsidies to commercialize alternate power sources such as wind, solar, biofuels and clean coal. Such subsidies, Heritage analysts caution, distort market forces and encourage corporate dependence on government. By making loan guarantees to subsidize some of the cost of a project, for example, the government diverts capital from more competitive projects.

"Loan guarantees and other subsidies encourage companies to pursue political profit rather than economic gains," Lieberman and Loris write. "When the government announces money will be allocated for specific projects or technologies, the result is hand-over-fist lobbying by power companies to secure taxpayer money. By continuing to subsidize unproven technologies, government makes consumers pay twice -- once to fund the subsidies and again with higher electric bills."

At the same time, the Obama blueprint would increase the Department of Interior's budget through punitive tax increases on the oil and gas industry as well as multiply regulations limiting their access to energy resources. The government would collect $31 billion in new revenues from oil and gas explorers, which already shoulder generally higher tax rates.

When gasoline prices hit $4 per gallon last year, Americans let their government know they wanted policies that increase the energy supply and ultimately lower prices. But the "exact opposite" will result, Lieberman says, if the administration goes ahead with plans to impose new excise taxes on offshore oil and gas production, cut off funds to coal states for cleaning up abandoned mines and charge "user fees" to business for processing oil and gas permits on federal land.

"President Obama's costly energy proposal will spend more and raise energy prices for Americans by taxing cheaper, reliable sources of energy to invest in unproven ones," Lieberman says.