April 6, 2009
By Nicolas Loris
Many Americans find the debate in Washington over adopting a
"cap and trade" program to reduce carbon dioxide a bit confusing.
That's understandable. Put simply, it's a tax on energy
In fact, it would be a huge tax. If enacted, cap-and-trade will
be one of the government's largest revenue sources within the next
decade. It also would break one of President Obama's promises. In
his speech before Congress in February, he said, "If your family
earns less than $250,000 a year, you will not see your taxes
increased a single dime." Unless you use energy, apparently.
Yet you won't hear the proponents of cap-and-trade calling it a
tax. The Obama administration and many members of Congress claim
that any money generated by a cap-and-trade is "climate revenue."
As if every time the temperature rose, the government would
magically receive more money. Not quite.
It's a tax on your energy bill, plain and simple. The
administration's federal budget blueprint, however, maintains that
everything will be all right. Why?
Because the money will be recycled back to the people. Under the
EPA's section of the budget, about $80 billion per year in energy
tax revenues will be dispersed as a tax cut to low- and
middle-income workers and used for renewable technology investment,
beginning in 2012, if cap-and-trade becomes law. But the
Congressional Budget Office estimates that the tax revenues from
cap and trade could be much higher -- as much as $300 billion per
year by 2020.
Deep in the details of the budget, the Obama administration
acknowledges this, when they suggest additional revenue would be
redistributed to the public and when they say these "climate
revenues" would be used for tax cuts.
Still, the numbers don't add up. The administration sets aside
$400 per individual and $800 per couple, but that diminishes for
individuals making $75,000 or more for couples making above
$150,000. It phases out completely for individuals whose income is
above $100,000 and couples above $200,000 - clearly less than the
$250,000 mark in Obama's pledge.
And it may get worse than that. A new study by Bryan Buckley and
Sergey Mityakov of Clemson University found that that the
cap-and-trade approach contained in a bill introduced last summer
by Sens. Joseph Lieberman, I-Conn., and John Warner, R-Va., would,
in effect, hit the average American household with a tax hike of
$1,100 in 2008 - a hike that would rise to more than $1,400 in
2015. There goes that "single dime" - and then some.
Such a tax hike might be justifiable, arguably, if the result
was more jobs. But significantly taxing our most reliable sources
of energy will only increase unemployment by slowing an already
According to The Heritage Foundation's Center for Data Analysis
of the Lieberman-Warner bill, cap-and-trade could result in job
losses of 900,000 in some years. Americans should understand the
costs of an energy tax, particularly in such tough economic
conditions. Especially important, this tax falls disproportionately
on the poor. Since low-income households spend a larger percentage
of their income on energy, the tax is very regressive.
Worse, this high tax will all be for naught, as cutting carbon
solely in the U.S. will change global temperatures by only a
fraction of a degree.
Analysis by the Environmental Protection Agency shows that a 60
percent reduction in carbon-dioxide emissions by 2050 will reduce
global temperature by 0.1 to 0.2 degree Centigrade by 2095.
A multi-lateral approach wouldn't fare much better. Just ask
Europe. The Kyoto Protocol was a failure, and the ebbs and flows of
the market are causing a number of hiccups in the EU's carbon
trading plan. As a result, permit prices are falling, electricity
prices are up and carbon reduction is negligible. And this doesn't
even include two of the world's biggest polluters, India and
In a case of international cooperation, India, China and the
rest of the developing world would have to revert to their 2000
levels of carbon emissions by 2050. On a per-capita basis, China
would backtrack to about one-tenth of what the U.S. emitted in
2000. India and most of the developing world would have to drop to
even lower levels. This scenario is a fantasy and would de-develop
the developing world. So what can we expect from cap-and-trade? A
lot of gain (in the form of tax revenue) for the federal government
-- and a lot of economic pain for the American consumer.
And all for little, if any, environmental gain.
Nicolas Loris is a Researcher Assistant in the Thomas A. Roe
Institute for Economic Policy Studies at The Heritage
First appeared in McClatchy
Many Americans find the debate in Washington over adopting a "cap and trade" program to reduce carbon dioxide a bit confusing. That's understandable. Put simply, it's a tax on energy consumption.
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