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WebMemo #2585-ky on Energy and Environment

August 19, 2009

Impact of the Waxman-Markey Climate Change Legislation on Kentucky

By , , , and

On June 26, a 1,427-page climate change bill introduced by Representatives Henry Waxman (D-CA) and Edward Markey (D-MA) passed the House by a narrow margin. The bill, also known as Waxman-Markey, includes a number of alarming provisions, chief among them a cap-and-trade program that would attempt to curb global warming by imposing strict upper limits on the emission of six greenhouse gases, with the primary emphasis on carbon dioxide (CO2). The mechanism for capping these emissions requires emitters to acquire federally created permits (or "allowances") for each ton of greenhouse gas emitted.

Because these allowances carry a price-and because 85 percent of the United States' energy needs come from carbon-emitting fossil fuels-Waxman-Markey is best described as a significant tax on energy use. Since everything Americans use and produce requires energy, the tax hits U.S. pocketbooks again and again. The Heritage Foundation's Center for Data Analysis forecasts severe consequences, including skyrocketing energy costs, millions of jobs lost, and falling household income and economic activity-all for negligible changes in the global temperature.[1]

Workers and families in Kentucky may be wondering how cap-and-trade legislation would affect their income, their jobs, and the cost of energy. Implementing Waxman-Markey would put a chokehold on Kentucky's economic potential, reducing gross state product by $5.94 billion in 2035.

Waxman-Markey Effect

Consumers would be hit hard. Between 2012 (when the restrictions first apply) and 2035 (the last year of this analysis), the prices of electricity and gasoline will rise sharply when compared to prices in a world without cap and trade. By 2035, Americans living in the state of Kentucky will see their electricity prices rise by $1,100.21 and their gasoline prices rise by $1.34 per gallon solely because of Waxman-Markey.

Economic Indicators

Utility Costs

As the economy adjusts to shrinking gross domestic product (GDP) and rising energy prices, employment will take a big hit in Kentucky. Beginning in 2012, job losses will be 21,941 higher than without a cap-and-trade bill in place. And the number of jobs lost will only go up, increasing to 37,844 by 2035.

Contrary to the claims of an economic boost from green investment and green job creation and "postage stamp" costs, the Waxman-Markey climate change legislation does the complete opposite by increasing energy prices-thereby causing a considerable reduction in the rate of economic growth, the amount of GDP, household incomes, and employment.

David W. Kreutzer, Ph.D., is Senior Policy Analyst for Energy Economics and Climate Change, Karen A. Campbell, Ph.D., is Policy Analyst in Macroeconomics, William W. Beach is Director of the Center for Data Analysis, Ben Lieberman is Senior Policy Analyst in Energy and the Environment, and Nicolas D. Loris is a Research Assistant in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

Show references in this report

[1]Chip Knappenberger, Climate Impacts of Waxman-Markey (the IPCC-Based Arithmetic of No Gain), MasterResource, May 6, 2009, at http://masterresource.org/?p=2355 (August 3, 2009).

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