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Cap and Handout: How Corporate Welfare Cost Consumers More

Posted By Nicolas Loris On June 4, 2009 @ 9:43 am In Energy | Comments Disabled

In order to get the Waxman Markey cap and trade bill through the House Energy and Commerce Committee, handouts had to be given. The basic idea behind cap and trade is to put a price on allowances, or the right to emit carbon dioxide. President Obama’s budget proposal suggested a 100 percent auction of these allowances so companies would bid on the right to emit. Businesses, knowing very well their companies would be severely affected, sent their best lobbyists to Washington to protect them. And it worked.

In the end 85 percent of the allowances have been promised for free. The biggest winners are the electric utilities, which get 35 percent of the allowances. Some energy intensive manufacturers also made out well. So only 15 percent of the allowances will be auctioned, at least in the initial phase of the bill, and even that may get promised away as the bill moves forward. Speaking at The Heartland Institute’s Third International Conference on Climate Change, Heritage Senior Policy Analyst Ben Lieberman told a group of 250 people:

But these free allowances don’t lower the costs of Waxman Markey, they just shift them around. Keep in mind that the targets are still the targets, and the way they work is by inflicting economic pain. After all, if the cost of electricity or gasoline stayed the same, individuals and businesses would use just as much and the targets would not be met. Prices have to go up enough to force people to use less energy, and so anyone who is bought off with free allowances, means the costs for everyone else are that much higher. So for those of you in this room who haven’t hired one of the 2,400 lobbyists working on this issue, it probably means whatever free allowances they get for their clients, that Waxman-Markey will cost you that much more. And as far as I know, none of those 2,400 lobbyists are registered to work for the American consumer. Free allowances also mean that the pot of money that the government collects from auction revenues will be lower. This money could have been used for various purposes like rebates to low income households that would otherwise be disproportionately burdened by higher energy prices or to fund the next big health care plan. But the available revenues that could be redistributed are made smaller by all the allowances given away.

Now if this all sounds confusing, remember that is exactly the point. This is an energy tax in disguise, energy prices go up but it’s done in such a roundabout and convoluted manner that the hope is the public doesn’t recognize it as a tax, at least not until it’s too late.”

And it’s a huge tax. After adjusting for inflation, the tax would bring in about $5.6 trillion dollars over a 2012-2035 time horizon. As shown below, most would be handed out in corporate welfare, leaving the consumer to pick up the tab.

The above chart is the allowance revenue distribution in billions of 2009 dollars.


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