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  • CBO Grossly Underestimates Costs of Cap and Trade

    Last week, the Congressional Budget Office released their analysis of the Waxman-Markey climate change bill that had proponents of the bill claiming we could save the planet for just $175 per household. That was the figure CBO estimated cap and trade would cost households in 2020, which “includes the cost of restructuring the production and use of energy and of payments made to foreign entities under the program, but it does not include the economic benefits and other benefits of the reduction in greenhouse gas emissions and the associated slowing of climate change.”

    The trouble with the analysis is that costs are grossly underestimated. The trouble with legislation is that it will have virtually no impact on climate.

    Overall, there are a number of basic problems with CBO’s analysis:

    • Their allowance cost numbers don’t add up. They say the allowance price will be $28. Since there are 5.056 billion tons of CO2 equivalent in the cap that year, that implies a $141 billion gross cost. They list 91.4 (see table one). In the CBO’s June 5 analysis of Waxman-Markey, they projected allowance revenues of $119.7 billion, 129.7 billion, $136 billion, $145.6 billion, and $152.9 billion for the years 2015 to 2019. It’s hard to believe that the next number in that series would be $91.4 billion.

    • They assume that spending/distribution of allowance revenue is dollar-for-dollar equivalent to a direct cash rebate to energy consumers. That is, the carbon tax isn’t a tax if the government spends the money. When have Americans ever seen all of a tax returned to them? It’s like suggesting your tax rebate will be as large as the amount taken from your paycheck every year.

    • Most problematic is their complete omission of economic damage from restricting energy use. Footnote three on page four reads, “The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap. The reduction in GDP would also include indirect general equilibrium effects, such as changes in the labor supply resulting from reductions in real wages and potential reductions in the productivity of capital and labor.” That’s a pretty big chunk of change to ignore. In The Heritage Foundation’s analysis of the Waxman-Markey climate change legislation, the GDP hit in 2020 was $161 billion (2009 dollars). For a family of four, that is $1,870 that they ignore.

    It’s also worth noting that 2020 had the second lowest GDP loss of the 24 years we analyzed. For all years the average was $393 billion or over double the hit in 2020. In 2035 (the last year analyzed by Heritage) the lost GDP works out to $6,790 per family of four and that is before they pay their $4,600 share of the carbon taxes (again, costs are adjusted for inflation to reflect 2009 prices).

    Also telling, on page 5, the report says:

    The distribution of the gross cost of complying with the policy would be quite different if the price level did not increase as a result of the cap—if, for example, the Federal Reserve adjusted monetary policy to prevent such an increase. In that case, the compliance costs would fall on workers and investors in the form of lower wages and profits.”

    So high inflation will help mask the pain (at least in 2020); however, it is doubtful the Fed would not act to try to keep inflation low especially if investors and international investors are getting hit. According to the CBO, then, this would cause workers and investors to be hit harder. But if investors are hit harder, they will invest less; therefore, there will be less capital and the potential GDP will be lower going forward than it would otherwise be. A lower potential GDP means fewer opportunities for future populations. (Note: The Heritage analysis assumes the Fed would use a Taylor type rule. The CBO inflation number in 2020 [0.7 increase in CPI] matches Heritage’s exactly. Yet the CBO claims it assumes no action by they Fed, while Heritage does. )

    Furthermore, the CBO is misleading on the “costs” estimates. They are comparing “net costs” as those assuming the government did not recycle the revenue from allowances back to the consumers (the “gross cost” of the allowance) to the “net cost” of allowance that has been recycled. Their analysis is not a net cost to the economy in terms of the overall economic cost without a Waxman-Markey cap and trade bill versus the overall economic cost with Waxman-Markey. Our analysis measures the effects of cap and trade versus a baseline with no cap and trade legislation in place.

    Higher energy costs create a significantly slower economy and reduce America’s growth potential. Heritage analysis finds that by 2035, a projected 2.5 million jobs are lost below the baseline (without a cap and trade bill). The average Gross Domestic Product (GDP) lost is $393 billion, hitting a high of $662 billion in 2035. The negative economic impacts accumulate, and the national debt is no exception. The increase in family-of-four debt, solely because of Waxman-Markey, hits an almost unbelievable $114,915 by 2035.

    Whatever the costs, we will get almost nothing in exchange. According to climatologist Chip Knappenberger, Waxman-Markey would moderate temperatures by only hundredths of a degree in 2050 and no more than two-tenths of a degree at the end of the century. This doesn’t sound like a great deal for the next generation—millions of lost jobs, trillions of lost income, 50-90 percent higher energy prices, stunning increases in the national debt, and all for undetectable changes in world temperature.

    Addendum: For a full analysis, please read “CBO Grossly Underestimates Cost of Cap and Trade.”

    Posted in Energy [slideshow_deploy]

    41 Responses to CBO Grossly Underestimates Costs of Cap and Trade

    1. Pingback: CBO Grossly Underestimates Costs of Cap and Trade « Conservative Thoughts and Profundity

    2. Jim Yardley, PA says:

      I strongly encourage every one who reads this post to contact their congressional representative to voice their opinion on this monstrosity of a bill. No one really knows the true costs or benefits of this. Why the rush? One thing that's a given however is that energy, along with any thing that is produced or transported, will become much more expensive as a result of this legislation. Considering we are in the death grips of a world recession why would we want to unilaterally punish American business and consumers for a environmental benefit that is negligable at best? How is this legislation going to make us more competitive with countries like China, India, or Russia who have refused to burden their economies with what can only be called "junk science." This is over reach of the tenth degree and nothing more than another naked grab for power and control out of this administration and congress.

    3. Pingback: Did the CBO Underestimate the Cost of the Waxman-Markey Energy Tax?  | GlobalWarming.org

    4. Pingback: Michelle Malkin » Bogus cap-and-trade statistic of the day

    5. James Dragan, Southf says:

      The "cap and trade" bill dramatically increases the cost of doing business for the average American. Americans use 25% of the world's energy to create half of the world's wealth. When the common people are able to create wealth, all problems are solveable.

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    8. Pingback: COACHEP » Blog Archive » CBO Grossly Underestimates Costs of Cap and Trade

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    12. gerald marcus says:

      This is a beautiful way to get a increase in your electric bill of about 90 percent and the money going to corrupt government.

    13. Cap'm Kirk says:

      I've never thought that getting rushed into any decision was the right thing to do. I feel as if Pres. Obama is the Used Car Salesman, pushing me into some sort of rushed, can't have this deal tomorrow, type deal. And as anyone that's ever been bullied into a used car, it never turns out good. Stop the rush, if it's worth doing, it will be worth doing after we get to read and debate the bill. Let's not have another "stimulus" type bill that gets read by speed readers so they can say it was read into the record. Let the people have time to digest this, comment on it and voice their opinions to their representatives, it's how it's done, at least before we got all this "change". A rushed decision is always, and I mean ALWAYS a bad decision. SLOW DOWN!

    14. Pingback: Nancy Pelosi Is Trying to Do WHAT This Friday? Ram Through Energy Tax Bill with Cap and Trade without It Being Fully Reviewed Americans Knowing How High Their Taxes Will Go « Frugal Café Blog Zone

    15. Pingback: Holy Hell Cap And Trade Vote Coming This Friday!

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    17. Bob says:

      Great article. I wrote a bit about it on my new blog as well http://www.BobandGui.com. We need to use this opportunity to educate younger Americans on the real cost of government intervention.

    18. Pingback: Bob & Gui » Cap and Trade must be defeated

    19. Pingback: Pelosi Pounding Drum Louder for Cap-and-Trade Vote This Friday, WSJ Exposes What Americans Will Pay for Waxman-Markey Energy Bill « Frugal Café Blog Zone

    20. Pingback: Call Your Congressman - Cap And Trade Set For Floor Vote This Friday 6/26/09 : Conservative Nation

    21. Conservative Voter - says:

      Call your Congressman and advise them to vote down the Cap and Trade Set for Floor Vote this Friday 6/26/09 as this is Grossly overpriced, and it needs to be defeated.

    22. Pingback: cabinetmeeting.net » Blog Archive

    23. Chris Pedersen Nixa, says:

      The American people are being lead like lambs to the financial slaughter house. But I don't hear their massive kicking and screaming, proving we are the dumbest people in the free world to stand for this, starting with the first word on the first page of HR 2454.

      I will just subtract the difference in the price of todays electricity bill from any and all increases in the future if it passes. If they shut it off, I will restore it. The theft of energy is on the horrizon making criminals out of honest people in their quest for survival.

      More "entitlements" & "bailouts" will be created for those who will be unable to afford this, proving the socialist agenda of government reliance is alive and well and not much can be done about it because of corrupt politicians. The politicians are in on it together, with the power of their votes to sell-out the lambs as they usually do for the lobbyists. They are the real money "changers"!

      However, a Nationwide Strike of 100 million or more wouldn't take more than a few days to shut this country down tighter than "Zoro's Hatband".I mean bring it to its knees. It is as easy as pulling up a chair and placing OUR dumb-masses in them. Faster than a total UPS/Truckers Strike would take hold. Buy only the basic neccessities of life. Do exactly the opposite of what the politicians want or expect. Rub the dog's fur in the opposite direction long and hard enough you will get a response. They will have to meet our demands of reversal to every piece of RANK legislation passed thus far, and the scrapping of all RANK legislation pending.

      Our demand for the passage of The Fair Tax Plan H25/S1025 will be the most important piece of legislation on the table, other than the repeal of many others or the scrapping of what is in the pipeline loaded with runnaway earmarks.

      This organization could identify these legislative bills, as well as the one's that need to be repealed or ripped up to never see the light of day again, along with the politicians who were on board.

      A Nationwide Strike means no ballot box needed. Just shut it down and shut it down now, HARD. Making Obama/Democrat-Congress a lame duck in the shortest time ever in American history, demonstrating to the World that WE THE PEOPLE have the POWER over OUR government and WE don't even need a ballot box as the World Markets crash too.

      If we are supposed to be the "Most Powerful Nation In The World" lets demonstrate that power NOW. Sit on OUR butts and do exactly the opposite. Don't spend any monies. Make our own run on the banks. Sell off your stock. Put our 401k's into IRA's and stay home reducing your fuel consumption instantly. Be creative, and the States will also feel this self impossed pain with tears on their cheeks screaming at Washington. Let them make the calls while we "just sit there" doing nothing.

      Obama loves the Unions. Lets give him a taste of his own medicine. Strike,Strike,Strike ! The are no laws to prevent this massive nationwide walkout. None! We own them[the politicians] lock stock and barrel. The unemployed democrat lambs have no one else to blame but themselves. They prove the point everyday that they are incapable of saving themselves from themselves let alone this Nation as a whole. But that doesn't mean the rest of us have to stand here and take it any longer. So pull up a seat and sit down!

      As the song says "Freedom Is Just Another Word For Nothing Left To Loose" while Congress is striking another match, day in, and day out to the Constitution while spreading its ashes further and further for their financial future while selling US out one dollar or one trillion dollars at a time. Wake up America, just shut it down.

      Congress will shutter in their shoes, as will Wall Street and the White House because it has never been done before. Just like the Tea Parties & Fair Tax Rallies gained so much attention, a nationwide strike is a much larger scale. You think the lamestream media will take notice? Probably,they won't have a choice but to report it. Fair & Balanced ? I doubt it, but we stay out until they do.

      The real question is; Who has the guts to stand strong for this to take hold? True Patriots of financial freedom must consider it. It's OUR money! When is "enough" "enough"! No guts, no glory!

      It would only take about a week, and no more than two. How about a month or two? The Statue Of Liberty would be restored once and for all, instead of bowing to her knees for the socialists in the White House/Polosi et al in the Congress including those Republicans who capitulated for their sweetheart backroom deals.

      Then the 2010 elections will hopefully clean out Washington like an enlarged enema tube being inserted where the sun doesn't shine. This is what Congress is doing to the American People this very minute with this legislative bill.

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    29. rjjrdq, Los Angeles says:

      Obama wants to ram these things through because an educated population would never go for this. As it stands now, I'm willing to bet that if you mentioned cap and trade to the Average American, you would just get a glazed look. Cap and what? An information age irony.

    30. Pingback: CONSENSUS WATCH - 6/27/2009; because without consensus, scientific conclusions would remain vulnerable to new data. | GORE LIED

    31. Pingback: Jesus is Lord, A Worshipping Christian’s Blog » Blog Archive » “Cap and Trade – The End of Prosperity in America” by Jennifer Rast

    32. Pingback: Cap and trade heads for the Senate « WeGetIt.org Campaign

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    38. Pingback: Thankful today for President Obama! - Politics and Other Controversies - Democrats, Republicans, Libertarians, Conservatives, Liberals, Third Parties, Left-Wing, Right-Wing, Congress, President - Page 15 - City-Data Forum

    39. CJ says:

      The cap and trade bill will increase the cost of living for all Americans. Americans has lost the manufacturing sector. When people are able to create wealth through manufacturing jobs the recession is dealt with. http://helpwithmarriage.info/reviews/to-get-ex-ba

    40. getexback says:

      All the jobs are overseas thanks to the trade bill

    41. getexback says:

      When will congress understand that we are becoming a thirld world country by giving away jobs?counseling marriage

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