NCPA - National Center for Policy Analysis


March 9, 2009

Politicians love cap and trade because they can claim to be taxing "polluters," not workers.  Hardly, says the Wall Street Journal.  Once the government creates a scarce new commodity -- in this case the right to emit carbon -- and then mandates that businesses buy it, the costs would inevitably be passed on to all consumers in the form of higher prices. Stating the obvious, Peter Orszag -- now President Obama's budget director -- told Congress last year that "Those price increases are essential to the success of a cap-and-trade program."

Hit hardest would be the "95 percent of working families" Obama keeps mentioning, usually omitting that his no-new-taxes pledge comes with the caveat "unless you use energy."  Putting a price on carbon is regressive by definition because poor and middle-income households spend more of their paychecks on things like gas to drive to work, groceries or home heating.

According to the Congressional Budget Office (CBO):

  • Price hikes from a 15 percent cut in emissions would cost the average household in the bottom-income quintile about 3.3 percent of its after-tax income every year; that's about $680, not including the costs of reduced employment and output.
  • The three middle quintiles would see their paychecks cut between $880 and $1,500, or 2.9 percent to 2.7 percent of income; the rich would pay 1.7 percent.

But the greatest inequities are geographic and would be imposed on the parts of the United States that rely most on manufacturing or fossil fuels -- particularly coal, which generates most power in the Midwest, Southern and Plains states, says the Journal:

  • Coal provides more than half of U.S. electricity, and 25 states get more than 50 percent of their electricity from conventional coal-fired generation.
  • In Ohio, it totals 86 percent, according to the Energy Information Administration.
  • Ratepayers in Indiana (94 percent), Missouri (85 percent), New Mexico (80 percent), Pennsylvania (56 percent), West Virginia (98 percent) and Wyoming (95 percent) are going to get soaked.

Source: Editorial, "Who Pays for Cap and Trade?  Hint: They were promised a tax cut during the Obama campaign." Wall Street Journal, March 9, 2009.

For text: 


Browse more articles on Environment Issues