NCPA - National Center for Policy Analysis


March 13, 2009

Whatever else it accomplishes, cap and trade will be a huge tax on the productive sectors of the economy.  The "cap" is a government-imposed limit on total emissions; companies then buy permits from the government to emit pollutants up to the amount of the cap, and can then trade these permits with each other.  The process of issuing and pricing the permits will be an invitation to astonishing amounts of lobbying and favor-seeking.  Cap and trade, in the words of MIT's Richard Lindzen, will be a bureaucrat's dream.

According to a recently released study by the George C. Marshall Institute:

  • The cost of cap and trade to the overall economy -- depending on the size and scope of the legislation -- is anywhere from a 0.3 percent to 3 percent drop in GDP in 2015 below what it would otherwise be.
  • Americans would see their electricity prices jumping 5-15 percent by 2015, natural gas prices up 12-50 percent by 2015, and gasoline prices up 9-145 percent by 2015.

The numbers are staggering, which is why the Obama administration plans to divert some of the permit revenues to its "making work pay" tax credit, reimbursing low-income individuals up to $400 a year and $800 for couples.  It won't be enough, says the Standard:

  • The Senate failed to pass cap-and- trade legislation in 2007 -- the Lieberman-Warner bill -- which the Marshall Institute estimates would have cost each American household $1,100 in 2008, rising to $1,437 by 2015, and $2,979 in 2050.
  • Obama's plan is far more ambitious, and would be a far greater burden to American taxpayers; the administration projects that the tax would raise some $650 billion for federal coffers between 2012 and 2019.

The other reason for not hurrying up with a carbon tax may well be that the science underlying climate-change alarmism has taken a beating, says the Standard.  "It's been a catastrophic year" for global warming activists, says Christopher Horner of the Competitive Enterprise Institute, an industry-funded think-tank.  All of a sudden, "the observations are very inconvenient."

Source: Michael Goldfarb, "Obama's Global Warming Straddle," Weekly Standard, March 12, 2009; and

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