CAP-AND-TRADE IN THE WEST

March 25, 2009

Specific proposals that several Western states would implement to comply with a proposed cap-and-trade carbon emissions control pact would destroy jobs and erode income, according to a report co-released by the Beacon Hill Institute (BHI) and the Washington Policy Center (WPC).

Reviewing the three cap-and-trade recommendations -- that consider "narrow" and "broad" market coverage and the use of offsets -- made by the Western Climate Initiative (WCI), the authors identified several flaws made by the seven-state consortium, consisting of Arizona, California, Montana, New Mexico, Oregon, Utah and Washington.  Thus, calling into question the so-called cost savings of $11.4 billion to $23.5 billion heralded by WCI.

Under a scenario in which 25 percent of greenhouse gas emission permits would be auctioned off to emitters in a cap-and-trade scheme, BHI determined that the seven states:

  • Would lose between 35,177 to 165,397 private sector jobs, while the permit revenue would allow the states to hire up to 19,710 state employees.
  • Would put investment by firms at serious risk by slowing investment in the region by $1.6 billion to $4.5 billion.
  • Would diminish total personal income, which would fall by $10.2 billion to $47.71 billion per year.

Moreover, BHI found that none of the 7 WCI states would escape economic harm should cap-and-trade be imposed.  Take Washington State for example.  The state could lose:

  • 18,292 net jobs.
  • $5.71 billion in personal income.
  • $302.54 in per capita disposable income.

The proposals' negative economic effects stem from the price and tax increases the states would impose on the energy and transportation sectors.  Because a cap on carbon emissions is effectively a tax on energy production that is passed to industry, businesses and consumers, the effect is likely to drive commerce and jobs to other states or countries, says BHI.

Source: David G. Tuerck et al., "The Economic Analysis of the Western Climate Initiative's Regional Cap-and-Trade Program, Washington Policy Center, March 2009.

 

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