The Costs of the Cap-and-Trade Bill

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On June 25, the House passed the Waxman-Markey climate stabilization act, which would institute a cap-and-trade system to restrict Americans’ carbon emissions. While proponents of the bill have sought to argue that the costs of such a system would be negligible, nothing could be further from the truth. In fact, the bill proposes a massive and highly regressive tax on the U.S. economy, and could potentially cause not only extensive business failures, unemployment and privation within our borders, but starvation among poorer populations elsewhere.

To understand this, it is only necessary to look at the numbers. According to a report issued by the Environmental Protection Agency in April, by 2015 the price of carbon emission indulgences required by the bill for industries to operate could be expected to run between $13 and $17 per ton of CO2 emitted. It may be noted that this estimate was made by an Obama administration agency highly favorable to the bill and that it did not take into account the very real possibility that speculators might act aggressively to buy up all the available indulgences and then, acting like ticket scalpers, force industrial users to purchase them at greatly inflated prices. So these EPA figures for carbon emission costs should be viewed as minimal. That said, let’s stipulate the $15/ton midrange of the EPA estimate, and see what it implies.

The United States emits about 9 billion tons of CO2 per year. Therefore, at a rate of $15/ton fee for emission indulgences, the bill would impose a tax of $135 billion per year on the nation. Divided by the U.S. population of 300 million, that works out to a cost of $450 per year levied on every American man, woman or child, or $1,800 for a family of four. While for wealthy individuals like Al Gore such an impost might represent a mere pittance, for working families struggling hard to make ends meet it would be a very significant burden.

But that is not even the worst part of it. As a result of the markup of carbon costs, a lot of those working families will be out of work and unable to pay their existing bills, let alone new ones. Consider: Burning one ton of coal produces about three tons of CO2. So a tax of $15 per ton of CO2 emitted is equivalent to a tax of $45/ton on coal. The price of Eastern anthracite coal runs in the neighborhood of $45/ton, so under the proposed system, such coal would be taxed at a rate of about 100 percent. The price of Western bituminous coal is currently about $12/ton. This coal would therefore be taxed at a rate of almost 400 percent. Coal provides half of America’s electricity, so such extraordinary imposts could easily double the electric bills paid by consumers and businesses across half the nation. In addition, many businesses, such as the metals and chemical industries, use a great deal of coal directly. By doubling or potentially even quadrupling the cost of their most basic feedstock, the cap-and-trade system’s indulgence fees could make many such businesses uncompetitive and ultimately throw millions of working men and women onto the unemployment lines.

A gallon of petroleum-derived liquid fuel produces about 20 pounds, or 1 percent of a ton, of CO2 when burned. But it takes about 1.5 gallons of oil to produce one gallon of refined liquid fuel. So a $15/ton tax on CO2 emissions will also cause an increase in the price of gasoline, diesel and jet fuel on the order of $0.22/gallon. This will not only hit consumers’ pockets, but increase transport costs throughout the economy, thereby disabling businesses and increasing unemployment levels still more. While harming the economy, such a gas tax will do nothing material toward the truly essential goal of decreasing America’s dependence on foreign oil. Indeed, the bill’s dramatic hikes in electricity costs will have the opposite effect, since only 3 percent of America’s electricity is derived from oil, and by forcefully increasing electric power costs, the bill will actually discourage adoption of electric means of transport, including mass-transit systems today and potentially plug-in hybrid cars in the future. America’s dependence on foreign oil could be substantially relieved by legislation requiring that new cars sold in the United States be flex-fueled and thus able to run equally well on alcohol fuels derived from a multitude of nonpetroleum sources, but the bill’s provisions in this area are so weak as to be worthless.