Testimony before the
Senate Republican Conference
June 22, 2009
My name is Ben Lieberman, and I am the Senior Policy Analyst for
Energy and Environment in the Thomas A. Roe Institute for Economic
Policy Studies at The Heritage Foundation. The views I express in
this testimony are my own, and should not be construed as
representing any official position of The Heritage Foundation.
I would like to thank the Senate Republican Conference for
extending me the privilege of participating in today's hearing.
I'll be discussing the costs of the cap-and-trade approach to
addressing global warming and The Heritage Foundation's economic
analysis of H.R. 2454, the American Clean Energy and Security Act
of 2009 (Waxman-Markey). As you know, the House is currently
considering this bill, which is similar to but has more stringent
targets and timetables than the Lieberman-Warner cap-and-trade bill
that was rejected by the Senate last June.
It is clear that cap-and-trade is very expensive and amounts to
nothing more than an energy tax in disguise. After all, when you
sweep aside all the complexities of how cap and trade operates--and
make no mistake, this is the most convoluted attempt at economic
central planning this nation has ever attempted--the bottom line is
that cap and trade works by raising the cost of energy high enough
so that individuals and businesses are forced to use less of it.
Inflicting economic pain is what this is all about. That is how the
ever-tightening emissions targets will be met.
The only entities directly regulated by Waxman-Markey would be
the electric utilities, oil refiners, natural gas producers, and
some manufacturers that produce energy on site. So, the good news
for the rest of us--homeowners, car owners, small-business owners,
farmers--is that we won't be directly regulated under this bill.
The bad news is that nearly all the costs will get passed on to us
What are those costs? According to the analysis we conducted at
The Heritage Foundation, which is attached to my written statement,
the higher energy costs kick in as soon as the bill's provisions
take effect in 2012. For a household of four, energy costs go up
$436 that year, and they eventually reach $1,241 in 2035 and
average $829 annually over that span. Electricity costs go up 90
percent by 2035, gasoline by 58 percent, and natural gas by 55
percent by 2035. The cumulative higher energy costs for a family of
four by then will be nearly $20,000.
But direct energy costs are only part of the consumer impact.
Nearly everything goes up, since higher energy costs raise
production costs. If you look at the total cost of Waxman-Markey,
it works out to an average of $2,979 annually from 2012-2035 for a
household of four. By 2035 alone, the total cost is over
Beyond the cost impact on individuals and households,
Waxman-Markey also affects employment, and especially employment in
the manufacturing sector. We estimate job losses averaging
1,145,000 at any given time from 2012-2035. And note that those are
net job losses, after the much-hyped green jobs are taken into
account. Some of the lost jobs will be destroyed entirely, while
others will be outsourced to nations like China and India that have
repeatedly stated that they'll never hamper their own economic
growth with energy-cost boosting global warming measures like
Since farming is energy intensive, that sector will be
particularly hard-hit. Higher gasoline and diesel fuel costs,
higher electricity costs, and higher natural gas-derived fertilizer
costs all erode farm profits, which are expected to drop by 28
percent in 2012 and average 57 percent lower through 2035. As with
American manufacturers, Waxman-Markey also puts American farmers at
a global disadvantage, as other food-exporting nations would have
no comparable energy-price raising measures in place.
Overall, Waxman-Markey reduces gross domestic product by an
average of $393 billion annually between 2012 and 2035, and
cumulatively by $9.4 trillion. In other words, the nation will be
$9.4 trillion poorer with Waxman-Markey than without it.
It should also be noted that the costs are not distributed
evenly. Low-income households spend a disproportionate share of
their incomes on energy, and thus would be hit harder than average
by Waxman-Markey. Of course, the bill has provisions to give back
some revenues to low-income households, but it is likely that these
rebates will amount only to some portion of each dollar that was
taken away from them in the first place in the form of higher
energy costs and higher costs for other goods and services.
Waxman-Markey also disproportionately burdens those states,
especially in the Midwest and South, that still have a substantial
number of manufacturing jobs to lose, as well as those that rely
more heavily than others on coal for electric generation. In
addition, because the bill raises energy costs, it hurts rural
America much more than urban America. Rural Americans, farmers and
non-farmers, spend an average of 58 percent more on energy as a
percentage of income than their urban counterparts, and those costs
would go up.
In conclusion, it's not surprising that support for
Waxman-Markey is heaviest in those parts of the country, the urban
centers in the West Coast and Northeast, that are least harmed by
it. Even there, the economic damage would be bad enough, but the
citizens in the rest of the country and their representatives
should really be asking many tough questions about the economic
impact of cap and trade. Thank you.