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  • Capping Economic Growth: Trading Tax Dollars for High Energy Costs

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    Senate Rejected an Economic Disaster

    • Bleak Cap and Trade Future: EPA Administrator Lisa Jackson said she planned to move the country toward a “carbon constrained future.” Any scheme, whether cap-and-trade or a carbon tax, that raises the price on carbon dioxide will raise energy costs while generating enormous sums of tax revenue for the government that American families and workers will ultimately pay for. They will be left with high energy costs, high prices, and low incomes.
    • Lieberman-Warner: Last year, the Senate rejected cap-and-tax legislation that would have capped CO2 emissions 70% below 2005 levels by 2050. A Heritage analysis of that bill found startling economic impacts.
    • 600 Hurricanes Couldn’t Cause This Much Economic Damage: In the first 20 years alone, the Lieberman-Warner bill would have resulted in aggregate real GDP losses (that is, adjusted for inflation) of nearly $5 trillion—for comparison, this is equivalent to the economic damage done by over 600 hurricanes.
    • The Bottom Line: In the first 20 years, the Lieberman-Warner bill would have destroyed over 900,000 jobs, caused nearly 3 million job losses in the manufacturing sector by 2029, caused some manufacturing sectors (e.g., paper, chemicals, and plastics) to shed over 50% of their jobs and generated up to $300 billion per year in government revenue while reducing income by nearly $5 trillion.

    Now a New, Costlier Version

    • Old Assumption: Analysis of the Lieberman-Warner bill assumed 30% (15% domestic, 15% foreign) of the emissions cuts could be met by allowing industry to purchase carbon credit offsets from international trading and domestic non-energy reductions such as cleaner farming technologies or planting forests. Such offsets are really ways for utilities and manufacturers to comply with the caps without actually reducing emissions.
    • New Reality: Reports suggest that the new House bill would not allow for such offsets even though the emission caps might be much more aggressive.
    • More Expensive: With this approach, this year’s incarnation would be much more costly than the bill rejected by the U.S. Senate last year. Such a costly approach is bad under normal circumstances and even worse during a recession.
    • Scholars Agree: Scholars from Clemson University recently did a review of eight different Lieberman-Warner analyses and they showed that the conclusions drawn by The Heritage Foundation fit in the mainstream of economic analysis.

    And With Little Impact

    • Minor Effect: Even if Congress enacted and implemented a bill to constrain carbon, its impact on global temperatures would be minor according to temperature calculation based on the EPA’s estimate of CO2 levels and the Intergovernmental Panel on Climate Change’s sensitivity estimates.
    • By 2100: By these calculations, the Lieberman-Warner bill would result in a drop in global temperature of only 0.1 to 0.2 degrees Celsius at the end of the century.
    • The Ultimate Outsourcing: Adopting a Cap and Trade scheme for the U.S. alone would allow countries like China to continue building their manufacturing base at our expense, and hurt global trade through unfair competition.
    • Lessons Learned: The U.S. should learn from the EU’s long, unsuccessful history when it comes to emissions trading schemes and not follow down the same path of failure.

    More Energy and Lower Prices

    Posted in Energy [slideshow_deploy]

    4 Responses to Capping Economic Growth: Trading Tax Dollars for High Energy Costs

    1. Shawn Marshall says:

      Cap and Trade would be utterly unnecessary in 'anyone's' mind if we transited to a large program to develop nuclear power, a tried and true, safe and clean and powerful source of energy.

      The fact that greenie extremies focus entirely on solar cells and windmills belies their underlying motivation.

      The cap and trade policy is economic lunacy; electric rates will skyrocket(just what they want) and USA businesses will suffer a huge competitive disadvantage.

      Instead of spending trillions to compound mistakes already made, I'd rather see the government spend a mere 500 billion to contract for nuclear power plants all over the country. Then sell them. The savings in money they intend to waste on the smart grid would pay for it. It would not be necessary to build all kinds of huge transmission lines if the plants were sited appropriately. But this won't happen because their object is suppression of capital and control of the people,precisely and exactly un-American.

    2. Thomas Gray, South C says:

      The EPA administrator is supposed to regulate pollution, NOT create a new source of revanue for the government.

      This is all insanity, its not lawfull what these people are doing.

    3. Thomas Gray, South C says:

      Enjoy your mandated lifetime of poverty,

      you people are the ones continually reelecting the same irresponsible and delinquent people into the same office year after year, your all are to blame for your troubles. President Bush blew the whistle on fanny and Freddy but got stonewalled and no support to enable him to change or at least head of the trouble,

      he may not have been the best president but when you disable one of only three powers ya'll made a gigantic bo bo. and got the attention of God himself I know I talk to him all the time, mostly one sided but I'm answered sometimes.

    4. guyz says:

      USA’s FAST ECONOMIC RECOVERY IN 2 STEPS

      Step 1 – STOP THE BAILOUTS and FIX THE BANKS

      - Solve the loan problem.

      - Solve the derivative problem.

      - Reassemble whole loan mortgages

      The U.S. economy is shrinking fast, because businesses cannot get loans that they need to operate normally. Banks and lenders already own $ billions in bad loans, and they are afraid to make new loans. The government gave $ billions in bailout money for banks to start lending, but banks hoard the money to save themselves.

      Our financial system became untrustworthy, because it mixed $ billions in bad loans in with the good loans. Now, banks do not trust any of the loans, and the entire credit market stopped working.

      The U.S. economy will continue to shrink until we untangle the loans. Once the bad loans are isolated, they can be fixed one at a time. Then trust will be restored. Credit will flow, and the economy will grow.

      So far, our government is spending $ trillions on bailouts and pork projects, out of ignorance and political ideology. The real solution is much less expensive than that.

      The USA has fixed this problem before, and it is not hard to fix again. This is how:

      A) Start with the Resolution Trust Corporation (RTC), which the federal government setup to solve a Savings and Loan problem in the 1980s.

      B) RTC buys up securitized mortgages and derivatives to reassemble whole mortgage loans.

      1. “Securitized mortgages” are home loans that have been bundled into large groups and sold to investors. A group of about 4,000 mortgages can be “securitized” and sold just like a stock or bond. Investors like to buy groups of mortgages because they receive all the monthly house payments.

      2. Some groups of securitized mortgages were subdivided into smaller pieces, called “derivatives.” However, both of the fancy names refer to mortgage loans.

      3. The problem is that many bad loans (with no payments) got mixed in with good loans. That turned the all the securitized mortgages into bad investments, which are ruining our banks. It is a huge problem, and the government has to fix it, before our economy will recover.

      4. Total securitized mortgage and derivative market is estimated at $1.3 Trillion by a Professor of Economics at Ohio State University. (Also see the graph from Deutsche Bank at “The Death of Securitized Mortgages” http://www.nakedcapitalism.com/2008/06/death-of-s… )

      5. Government should buy up securitized mortgages and derivatives at the lowest market price, which is set via a reverse auction. (Google on “reverse auction”.)

      6. Squatters, who sit on their mortgage derivatives, in order to extort big $ from the rest of the system, can be forced to sell. (Law is analogous to eminent domain, or sales forced on cybersquatters that registered the domain names of well-established companies.)

      7. Government pays mortgage derivative squatters at market price set by previous reverse auctions, perhaps with a penalty to the squatters.

      8. Sellers give up all rights. No new law there.

      9. Banks, investors, and insurers now have cash instead of questionable mortgage loans and derivatives. So, the banking system is healthy with cash to lend.

      10. Credit will flow, and the economy will grow.

      C) Government reassembles whole loans from securitized mortgage components and derivatives.

      D) Government sorts the newly reassembled whole loans (mortgages) into groups according to risk/quality.

      1. Government uses traditional mortgage experts and guidelines to sort the home loans into quality groups, for example, a high quality group would include homeowners with 20% (or more) equity in their house at today’s market price; and house payments that are 25% (or less) of homeowners monthly income.

      E) Government (RTC) sells the reassembled whole loans to traditional mortgage banks.

      1. This solves the problem of renegotiating home loans with homeowners. Read on.

      2. Law must be changed so that reassembled whole loan mortgages cannot be securitized into derivatives, again.

      3. An important purpose is to reconnect each homeowner with his lender, and vice versa.

      4. It eliminates incentive for mortgage lenders to make predatory and junk loans. If the loan fails, the lender is stuck with a bad loan.

      5. Government recovers much of the $1.3 Trillion purchase cost, because government auctions off the reassembled mortgages.

      6. The lower quality, more risky mortgages would fetch a lower price at auction.

      7. Mortgage companies, that buy the risky loans, will have more room to negotiate with the homeowners.

      8. Some homeowner negotiations will not succeed. Those homeowners will move into affordable rentals. (The government does not owe everyone a free house.)

      9. Other renters would like to buy those empty homes at reduced market prices.

      10. If the government gets stuck with some homes, the government could profit by selling the homes when the housing market recovers.

      F) Insurers like AIG may be reorganized through bankruptcy.

      1. Securitized mortgage pools never made business sense, unless they were protected by various insurance schemes.

      2. Those insurance schemes always were a scam.

      3. Insurance only works when most of the insured assets are never hit with a disaster. That is why flood insurance does not work very well. A major flood ruins all the buildings in a large area, all at the same time. So, the insurance company goes broke, and people that bought the insurance are not protected. That is the problem with securitized mortgage insurance. In an economic downturn, the “disaster” hits all the houses at the same time. Securitized mortgage insurance was doomed to fail, and the insurance companies went broke in 2009.

      4. Companies that ran the insurance scam may have to go through bankruptcy.

      5. Never ending government bailouts for insurers like AIG are just throwing good money after bad. So, stop the bailouts.

      This plan is inexpensive, tried and true. It leaves the banks healthy, with cash to lend. It restores trust in the credit markets, so loans will be made. It reassembles mortgage derivatives into whole loans, and restarts traditional mortgage lending. People can get loans to buy homes. Credit will flow, and the economy will grow.*

      Step 2 – STOP THE PORK and START THE RECOVERY

      *The economy will grow if President Obama’s massive tax, borrow, and spending plans can be stopped, before he creates another Great Depression. Presidents Hoover and Roosevelt already tried to tax, borrow and spend their way out of a recession in the 1930s. Instead, they created the Great Depression, which lasted 12 years. Straight as he goes, President Obama is doing it, again. Nevertheless, cleaning up the securitized mortgage mess is a necessary first step.

      If President Obama announced Steps 1 and 2, today, the stock market would go up within hours. Investors love a real business plan, instead of a political pork plan. Millions of people will be wealthier, feel wealthier, and have more money to spend. That will jump start the economic recovery within days.

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