The 1,500-page cap-and-trade climate legislation, also known as
Waxman-Markey, passed by a narrow margin late in the day on June
26. Members of Congress added 300 of those pages early in the
morning on the day of the vote. It is safe to assume that hardly
any of the 435 Members of Congress read the bill in its entirety,
meaning one of the costliest bills in American history was rushed
through so politicians could enjoy their 4th of July recess.
Cap and trade is nothing more than a massive energy tax, which
is why its chief alternative is a carbon tax, and it has been sold
under the following false pretenses:
- It will not cost anything;
- It will increase jobs;
- It will increase green investment; and
- It will save the environment.
A Lot More Than a Stamp a Day
A commonly quoted cost estimate of Waxman-Markey comes from the
Congressional Budget Office (CBO), which claims that cap and trade
will cost the equivalent of a postage stamp per day--$175 per
household in 2020.
But CBO admittedly ignores economic costs such as the decrease
in gross domestic product (GDP) as a result of the bill and
the fact that consumers and business will change their behavior as
a result of higher energy prices. This is a serious oversight that
has significant economic consequences.
In The Heritage Foundation's economic analysis of the
Waxman-Markey climate change legislation, the GDP loss in 2020 was
$161 billion (in 2009 dollars). For a family of four, that
translates into $1,870--more than 10 times the size of the $175 CBO
claim.Furthermore, the Heritage analysis found that for all years,
the average GDP loss was $393 billion, or more than double the 2020
loss. In 2035 (the last year analyzed by Heritage), the
inflation-adjusted GDP loss works out to $6,790 per family of
Energy-intensive industries will also suffer significant losses.
For instance, farming is very energy-intensive, with fuel,
chemical, electricity, and fertilizer costs; since cap and trade
drives up the cost of energy prices, farmers' losses will
undoubtedly outweigh any money they collect from offsets (the money
businesses would pay farmers to reduce carbon emissions by either
not farming or using more efficient technologies). The Heritage
Foundation's Center for Data Analysis found that farm income (or
the amount left over after paying all expenses) is expected to drop
$8 billion in 2012, $25 billion in 2024, and over $50 billion in
2035. These are decreases of 28 percent, 60 percent, and 94
percent, respectively. The average net income lost over the
2010-2035 timeline is $23 billion--a 57 percent decrease from the
It Is a Jobs-Destroying Bill
President Obama and Democratic House leaders claimed that
Waxman-Markey is a jobs bill. With the lavish subsidies for green
investment placed in the bill, surely companies will hire workers
to build solar panels and windmills; however, the number of "green "
jobs will pale in comparison to the number of jobs lost due to
higher energy prices and slower economic growth.
The goal of cap and trade is to drive up the costs of energy in
order for people to use less of it. Because just about every
business uses energy to produce goods and must pay their own
electricity bills, the cost of production for businesses increases,
and consumer demand falls for two reasons:
- Price hikes on goods reduce demand, and
- People have less disposable income due to higher energy
Overall, production cuts and reduced consumer spending destroy
jobs and slow economic growth, which further increases
The Heritage analysis found that over the 2012-2035 timeline,
job losses average over 1.1 million. By 2035, a projected 2.5
million jobs are lost below the baseline--without a cap-and-trade
bill. Some jobs will be lost completely, while
others will move to different countries where the cost of
production is cheaper. Again, these losses are on top of "green
jobs" created as a result of the bill.
Less Renewable Energy
The final House bill contained many renewable energy investments
in an effort to attract votes.The Waxman-Markey proposal even
requires that more electricity come from so-called renewable
sources, chiefly wind energy but also others like biomass and
solar. Ironically, according to an analysis of the bill by the
Environmental Protection Agency (EPA), Waxman-Markey would actually
result in less renewable energy produced than without the bill
because of the overall decline in electricity use.
Green projects do not pay for themselves; it is the taxpayers
who fund the research and development of renewable energy and the
cost of the subsidies that are required to make renewables
competitive. Yet renewable energy still only provides a small
fraction of America's energy needs, and it is more expensive per
kilowatt hour than traditional, reliable sources of energy.
Consumers lose doubly, paying more as taxpayers and as
It Will Not Save the Planet
The alleged benefit from cap and trade is that the regulations
will reduce carbon dioxide emissions enough to slow warming and
reduce global temperatures.
According to climatologist Chip Knappenberger, Waxman-Markey
would moderate temperatures by only hundredths of a degree in 2050
and no more than two-tenths of a degree at the end of the
century. Even EPA Administrator Lisa Jackson
concurred, recently saying, "I believe the central parts of the
[EPA] chart are that U.S. action alone will not impact world CO2
A multilateral approach would not fare much better. In the case
of international cooperation, India, China, and the rest of the
developing world would have to revert to their 2000 levels of CO2
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, in addition to being highly unlikely, would de-develop
the developing world.
Now that the bill has passed the U.S. House of Representatives,
it will likely move to the U.S. Senate this fall. It is important
to remember that everything policymakers have promised this bill
will do will in fact do the opposite. Cap and trade will drive up
energy costs for years to come, resulting in economic pain and
higher unemployment. All of these points will be equally important,
if not more so, in the Senate debate.
Loris is a Research Assistant and Ben Lieberman is Senior
Policy Analyst in Energy and the Environment in the Thomas A. Roe
Institute for Economic Policy Studies at The Heritage
Congressional Budget Office, "The Estimated
Costs to Households from the Cap-and-Trade Provisions of H.R.
2454," June 19, 2009, at /static/reportimages/8A2CEFCBECFD1C3C5ED3AB9EAC9FB1DB.pdf
(July 7, 2009).
Knappenberger, "Climate Impacts of Waxman-Markey (the IPCC-Based
Arithmetic of No Gain)," MasterResource, May 6, 2009, at http://masterresource.org/?p=2355 (June 30,