Testimony before
The House and Senate Western Caucus
July 30, 2009
My name is Ben Lieberman. 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 House and Senate Western Caucus for
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 narrowly passed 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 used 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 and ranchers--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 anyway.
What are those costs? According to an analysis we conducted at
The Heritage Foundation, an updated version of which will be out
shortly, 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
$4,600.
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
Waxman-Markey.
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.
The disproportionate burdens affect the West. Coal mining will
be very hard-hit, so Montana and Wyoming and other coal-producing
states will see this important sector of their economies shrink
significantly. Western oil and natural gas producers will face
higher costs as well. The promise of oil shale in Colorado, Utah,
and Wyoming will never be realized under Waxman-Markey. As I
mentioned, agriculture is hard-hit, and that particularly includes
things common in parts of the West that are not well positioned to
partially defray their costs by availing themselves of offsets,
like ranching on federal lands, fruits and vegetables, and
potatoes. And of course the long distances rural Westerners have to
drive in the course of each day means that gasoline and diesel
price increases hurt them more than other Americans.
In conclusion, it is 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, and
especially those who represent the rural West, should really be
asking many tough questions about the economic impact of cap and
trade.