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Washington, DC – While the American people continue to list climate change among the issues they care about the least, Rep. Henry Waxman (D-Hollywood), chairman of the House Energy and Commerce Committee, reported legislation out of his committee today that elevates that issue above all others, even as our economy founders and the benefits of cap-and-trade become less defensible by the day.
Thomas J. Pyle, president of the American Energy Alliance (AEA), issued the following statement:
Beneficiaries to receive 3 years of salary, health insurance, job training, and relocation package as a result of this job-killing measure
Washington, DC – With 946 pages of legislative text, it comes as no surprise that as the days pass by, interesting new provisions buried deep in the Waxman-Markey cap-and-tax bill are revealed. Today we expose section 426.
“While the authors of this bill continue to insist that cap-and-tax will be a clear economic winner, several provisions buried deep in the text confirm their true belief that it will massively stimulate the unemployment rolls,” said Thomas J. Pyle, president of the American Energy Alliance.
BURIED: Scarcely Reported Poll finds that 78% of Americans Oppose Legislation that will Increase Electric Bills
Washington, DC – Nearly six out of 10 Americans would oppose Chairman Henry Waxman’s cap-and-tax scheme if it resulted in their electricity bills going up a single penny, a recent poll found. And nearly eight out of 10 respondents would consider a $50 per month increase in utility bills a “hardship,” even if that figure only represents a fraction of the cost burden that cap-and-tax is expected to inflict on working Americans.
Only 24 percent of Americans understand cap and tax; Waxman needs to slow down and explain it to the American people
Washington, DC – Recent polling conducted by Rasmussen Reportsand released today found that an overwhelming majority of Americans notonly don’t support cap-and-trade – they don’t even know what it is,even when given three options from which to choose.
Interestingly,the polling data comes out at a time when Energy and Commerce ChairmanHenry Waxman (D-Calif.) is moving at breakneck speed to pass acap-and-tax plan out of his committee, announcing today that he expectsthe markup to begin on Thursday.
New debate centers on who should get thecarve-outs, who should get stuck with the tab
Washington,DC – After marathon hearings inthe House Energy and Commerce Committee last week debating the largest, mostregressive tax plan ever brought before Congress, Chairman Henry Waxman(D-Calif.), appears to have left many questions unanswered. Chief among them:how he plans to carve up the bill, and to whom he plans to extend the patronageof upfront emission “allowances.”
“Afterweeks of hearings and backroom deal-making, Chairman Waxman has yet to tell theAmerican people what this energy tax will cost, and the adverse impact it willhave on their everyday life,” said Thomas J. Pyle, president of the AmericanEnergy Alliance (AEA). “The fact that families are already struggling to makeends meet, it is reprehensible for Congress to add yet another tax to a familybudget that’s already stretched past its breaking point.”
[Read more…]
When Representatives Henry Waxman and Ed Markey unveiled their 648-page discussion draft climate and energy bill, they claimed that “The American Clean Energy and Security Act of 2009” will not only save the planet, but will provide the economy with a “green recovery” to boot. The bill, which was the subject of four days of hearings with more than 65 witnesses, features sweeping changes in energy policy including forcing families and businesses to buy more expensive electricity, implementing a low carbon fuel mandate (fuel with less energy in it), additional taxes on electricity generated from reliable energy sources, new energy efficiency mandates, and a cap and trade style energy tax. The measure represents a high water mark for political economic planning, but a low road for American family budgets.
Carbon Caps: A Tax Doesn’t Really Hurt If We Give the Money Back, Right?
The Waxman-Markey bill admits that the bill’s provisions, such as a cap and trade energy tax program, are very economically damaging and thus require countermeasures to (supposedly) cushion the blow to consumers. Since energy is, literally, the capacity to do work, increasing the costs of doing work will hurt the economy. In fact, much of Title IV is dedicated to limiting the economic impact of this plan, or as the bill describes it, “Preserving Domestic Competitiveness.”
Cap and trade is a tax on energy. Because cap and trade regulations increase the costs of doing business in the U.S., business will flee to countries with lower energy costs and the U.S. companies that remain will be put at a competitive disadvantage. The effect of limits on carbon dioxide emissions in the U.S. will be to export the jobs and industries which cause those emissions to other countries without such regulations. This exodus will limit jobs in the U.S., harm the U.S. economy, and not reduce global emissions of greenhouse gases. This last fact—that American efforts to clamp down on emissions may simply cause emitters to relocate to other jurisdictions—is referred to as “carbon leakage.”
In an attempt to counter this problem, the Waxman-Markey bill lays out a series of policy measures that attempt:
(1) To prevent an increase in greenhouse gas emissions in countries other than the United States as a result of direct and indirect compliance costs incurred under title VII of the Clean Air Act.
(2) To compensate the owners and operators of entities in eligible domestic industrial sectors and subsectors for carbon emission costs incurred under title VII of the Clean Air Act. [emphasis added]
This describes one of the ways in which carbon caps will enhance the power of unelected bureaucrats, even without officially raising taxes or government expenditures. First, federal regulators will set an absolute limit on how much carbon dioxide can be emitted by various industries. They will then “auction” (sell) these rights. This will foster a new market in paper permits sold by the government, giving legal permission for carbon dioxide-emitting businesses to trade in the (essential) business activity of emitting carbon dioxide. Then, to ease the blow, federal lawmakers may hand out many of these permits – for free – to favored constituencies. The whole operation is a massive tax hike and giveaway program, but its details are opaque to most voters who don’t understand the details (all 648 pages worth) of what “cap and trade” really means. The dirty little political secret, of course, is that cap and trade is not meant to be understood, and in fact, is a semantic device to make a tax on carbon emissions appear as though it not really a tax.
Another area of concern is found in the “Distribution of Rebates” section of the legislation. This section describes the distribution of rebates in a way that makes it appear as though the regulator won’t have much discretion in handing out carbon emission permits that may carry quite a hefty price tag.
However, in subsection (b)(2) (on page 540) the bill reads:
(2) PRESUMPTIVELY ELIGIBLE SECTORS AND SUBSECTORS.—An owner or operator of an entity shall receive rebates under subsection (a) if such source is in a sector or subsector that is included in a six-digit classification of the North American Industrial Classification System that meets the criteria under subparagraphs (A) and (B). The Administrator may rescind the eligibility of such sector or subsector only if the Administrator determines, after notice and an opportunity for comment, that, even in the absence of the rebates distributed under this section, such sector or subsector would not be subject to carbon leakage. [emphasis added]
In other words, the bill allows the Administrator to overrule the “objective” criteria for rebate eligibility if she decides that the cap and trade program poses no threat of “carbon leakage” to that industry after all. The considerations for making this determination are enumerated on pages 545 and 546 of the discussion draft, but they are rather vague and provide little to constrain the Administrator. In sum, the bill turns huge powers (including the very powers by which an industry’s success or failure may be determined) over to unelected and thus unaccountable government bureaucrats.
Starting a Trade War
The tremendous and arbitrary power the bill give the feds over private companies isn’t the only ominous feature of the Waxman-Markey bill. It also proposes a separate program of allowances—only this time, the “cap” is applied to imports coming into the United States. On page 561, the bill reads that if the President determines domestic companies are facing unfair competition because of disparate climate regulations among countries, then the Administrator shall issue regulations
(A) establishing, determining an appropriate price for, and offering for sale to United States importers international reserve allowances;
(B) requiring the submission of appropriate amounts of such allowances in conjunction with the importation into the United States of a covered good produced by any sector or subsector for which the President made an affirmative finding under section 414(b);… [emphasis added]
In essence, this provision admits that the consequences of increasing the costs of energy needed to manufacture American goods may make them uncompetitive, and so offers a way to penalize other countries for not adhering to U.S. standards. Since the direct route of establishing formal tariffs on imports may be too aggressive, and too blatant a violation of international trade agreements, the bill attempts this nuanced version of imposing U.S. standards on foreign nations and the companies that make products there. Under the Waxman-Markey approach, there would be a “stealth tariff,” because importers would need to purchase allowances for certain goods coming from countries that had looser carbon limits. With the world in a severe recession, starting another trade war is a terrible idea.
These are just a glimpse at a few of the implications to the U.S. in a bill which is the starting point for consideration by Congress of a comprehensive “reset” of our economic and energy policies. By themselves, they pose ominous threats to U.S. and world economic growth. The Waxman-Markey bill, unfortunately, is not limited to these particular impediments to economic growth and job creation.
| FOR IMMEDIATE RELEASE | CONTACT: |
| Wednesday, April 29, 2009 | Laura Henderson (202) 621-2951 |
AEA Educational Campaign to Fight Massive Energy Tax, Further Government Induced Job Losses
WASHINGTON – With Congress moving at breakneck pace to pass an energy tax bill that would amount to the largest single tax increase on working families in U.S. history, American Energy Alliance (AEA) today announced the launch of an integrated education and advocacy campaign aimed at helping Americans understand all the facts surrounding “cap-and-trade,” and arming them with the tools they need to hold their elected officials accountable as the debate moves forward in Washington, D.C.
At its core, the campaign will reach out to residents of ten targeted congressional district by taking its message to the radio airwaves, making sure middle-class Americans know that cap-and-trade is actually a massive, intentionally complicated “cap-and-tax” scheme in disguise – one that will potentially cost families more than $3,100 a year in new taxes and higher energy bills.
“Even advocates of cap-and-trade admit the purpose of the plan is to increase the cost of energy,” said AEA president Thomas J. Pyle. “That fact is not in dispute. The real fight in Washington is over how high those costs will go, and what, exactly, we can expect to get from engaging in the unilateral disarmament of our energy and economic future.”
Added Pyle: “Cap-and-trade’s supporters know full well what the answers are, but up until now have done their best to keep them away from the American people – at least until they have rammed their plan through Congress. AEA wants to ensure that Americans are fully aware of cap-and-trade’s dire consequences: higher energy bills, new taxes, and increased job losses.”
The radio spots are slated to run for two weeks, commencing Wednesday, April 29 in the home districts of Representatives John Barrow (D-Ga.), G.K. Butterfield (D-N.C.), Mike Doyle (D-Pa.), Charlie Gonzalez (D-Texas), Baron Hill (D-Ind.), Jim Matheson (D-Utah), Charlie Melancon (D-La.), Tim Murphy (R-Pa.), Mike Ross (D-Ark.), and Betty Sutton (D-Ohio). For audio and text of the ads, click on the representative’s name.
The American Energy Alliance (AEA) is a not-for-profit organization that engages in public policy advocacy and debate surrounding the function, operation, and government regulation of global energy markets. AEA, an independent affiliate of the Institute for Energy Research, works to educate and mobilize citizens around the idea that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges.
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Cap and Trade: A Stealth Tax on Carbon Dioxide Emissions
As with most heated political disputes, folks on both sides of this policy debate feel perfectly justified in accusing the other of misleading the public about its impacts. And like many debates that take place inside the Beltway, the accusations of those on the losing side are more often than not based upon their own set of self-defined, carefully chosen, “facts.” The DC discourse on the cost of cap and trade legislation is perhaps the most striking example in recent history. Despite the efforts of proponents of the Waxman-Markey legislation to discredit it, the figure of $3,100 in increased costs per household was derived in a candid, simple and straightforward manner: The MIT study estimates that between 2015 and 2050, a cap and trade program similar to the carbon dioxide reductions called for in the Waxman-Markey proposal would raise an average of $366 billion annually.
Remember, “cap and trade” means that the federal government sets an absolute limit or cap on how much carbon dioxide (and possibly other greenhouse gases) utilities and other targeted entities can emit in a given year. In order to comply with the law, these firms would have to turn over the correct number of allowances based on how much they emitted that year. The government gets its revenue by creating and auctioning these allowances into the private market. The “trade” aspect of “cap and trade” refers to the ability of firms to buy and sell these allowances, so that the total quantity of legally permissible carbon emissions gets allocated to those sectors of the economy that need them the most.
Given the literally trillions of dollars in [taxpayer] revenue at stake and the inherent temptation for politicians to not only give “free” allowances to favored constituencies, but also design trading rules that steer business (and hence trading commissions) to particular brokers and organizers of “auction exchanges”, most economists believe that cap and trade is an inefficient process susceptible to unbridled political corruption. In contrast to the shadowy arena of cap and trade, a straightforward tax on carbon dioxide emissions would actually achieve the alleged climate goals, minimize the opportunity for political mischief, and impose far less damage on the economy.
There are still huge dangers of a carbon tax, to be sure, but the point is that most economists who think that the government should “do something” about global warming believe that an honest and explicit tax would provide the incentive to move away from fossil fuels, while reducing the scope for corruption that is far larger under a cap and trade scheme.
If most economists agree that a carbon tax is more efficient and less prone to abuse than cap and trade, why are all the politicians discussing cap and trade to the almost complete exclusion of carbon taxes? The answer, of course, has nothing to do with economics or climate change, but with pure politics. It would be political suicide to propose to American voters a direct new tax on their energy that would raise $12.8 trillion in new government revenues from 2015 to 2050. But if instead the government proposed to auction emissions allowances to “big business” that would raise the exact same revenue stream, and the public might not be as wary since most people don’t really understand what “cap and trade” even means. And there you have it, folks…
Cap and trade is, quite simply, Washington speak for what most hard-working Americans would rightly consider an unprecedented, unwarranted, unnecessary, and unacceptable TAX on their families, their livelihoods, their personal freedom, and their Nation’s economic prosperity.
Like any other tax on American businesses and energy producers, this tax (the price they will have to pay for the emissions allowances they’ll need to stay in business) will ultimately be passed on to their customers in the form of higher prices. And it amounts to the largest single tax hike in U.S. history.
Given this fundamental and historic economic reality, a reasonable individual might understand why proponents of this tax are attempting to sell it to the American people under the misleading term “cap and trade”. A reasonable individual, however, might also calculate the average cost of this “cap and trade” scheme on American households. And based on the MIT study’s projection of $366 billion in auction [tax] revenues per year, divided by 117 million American households, a reasonable individual can calculate that this new scheme will cost American households an average of $3,100 per year.
In the end, it won’t be “Big Oil” or the utilities who pay for the carbon dioxide permits, but motorists and just about everyone who uses a hair dryer or electric razor in the morning; a computer or a cell phone during the day; a radio, television, or night-light in the evening; or a furnace or air conditioner in the winter or summer.
The Professor’s Retort: There Are Costs and Then There Are Costs
John Reilly, the author of the MIT study which contained the $366 billion figure, strongly objected to the interpretation of cap and trading costing each household $3,100. Reilly went so far as to say of the claim “It’s wrong in so many ways it’s hard to know where to begin.” Rather than the scary figure of $3,100 per household, Reilly instead estimated the cost of cap and trade at around $800 per household. (He originally had pegged it at $215, but admitted this erroneous figure was due to a “boneheaded mistake in an excel spread sheet.”)
What was Reilly’s objection to the estimate? Did he think—as some bloggers do—that oil companies and electricity providers exercise strong market power, and that extracting auction revenues from them would simply reduce their unfair profits, rather than leading to higher gasoline and electricity prices? Actually no, Reilly concedes that consumers will ultimately “pay for” the revenues flowing into government coffers because of cap and trade.
Reilly’s objection has to do with a subtle distinction in formal economics between a “cost” as measured in out-of-pocket expenditures versus a “cost” as measured by forfeited opportunities. This is a perfectly valid distinction, and it’s important for professional economists to keep these things straight. However, in the present context, Reilly’s figure of only $800 will mislead most voters who are undoubtedly thinking of this issue – or wondering about it – in terms of what it will it will ultimately cost them, their families, and our economy as a whole.
Before quoting Reilly’s explanation, let’s go through a quick example to understand the distinction between the two types of “cost.” Suppose the government announces a new program in which everybody in America with red hair has to pay $100 a week to the person who lives across the street. Economists are then asked to assess the “costs” of this strange new proposal.
The redheads of course would go nuts, claiming that the plan would “cost” them $5,200 per year. Ah, but that isn’t really a cost to the overall economy, the plan’s backers would say. Because every time a redhead pays $100 out of pocket, it constitutes $100 of new money for the person across the street. It’s a simple transfer from one American to another, and so the economy as a whole isn’t harmed.
But actually, we can’t stop the analysis there. The new program really would entail costs besides the transfer of $100 a week. For example, redheads would spend money on dyeing their hair or shaving their heads, and so more of the economy’s scarce resources would get channeled into the production of hair dye and barber visits than would otherwise have occurred. That means fewer other goods and services could be produced—what the redheads would have purchased with that money before the new program made them reconsider and buy hair dye instead.
In addition, the new “tax” on redheads would require government enforcement, and so real resources would be sucked out of the private sector to pay the bureaucrats who had to monitor the redheads and throw them in jail when they broke the rules. That would be yet another hidden cost of the program, and it would truly reduce the amount of other goods and services that could be produced—because those bureaucrats could have done something truly productive with their time, rather than spending their days looking for noncompliant redheads. (For example, rather than working for the government enforcing the redhead transfer program, they could have waited tables at a restaurant and truly served their fellow Americans.)
Our fanciful analogy of a transfer payment imposed on redheads is a good illustration of the distinction that MIT professor Reilly made when castigating proponents of the $3,100 figure. According to Reilly, the figure is wrong because:
It is not really a matter of returning [auction revenues to taxpayers] or not, no matter what happens this revenue gets recycled into the economy some way. In that regard, whether the money is specifically returned to households with a check that says "your share of [greenhouse gas] auction revenue", used to cut someone’s taxes, used to pay for some government services that provide benefit to the public, or simply used to offset the deficit (therefore meaning lower Government debt and lower taxes sometime in the future when that debt comes due) is largely irrelevant in the calculation of the "average" household. Each of those ways of using the revenue has different implications for specific households but the "average" affect is still the same. […] The only way that money does not get recycled to the "average" household is if it is spent on something that provides no useful service for anyone–that it is true government waste.
So now we see where the professor is coming from, and why shrill critics call the figure a “lie.” Because the government will turn around and spend that money on something, it doesn’t really count as a cost to the households who must pay higher gasoline and electricity prices after the Waxman-Markey plan is imposed. Reilly’s own figure of $800 per household refers not to higher energy prices, but rather to the lost consumption possibilities, the forfeited goods and services that will not be produced because of the artificial constraint (i.e. the cap on emissions) imposed on the economy. (That is why some groups argue that the number is too low and that the true cost to households should be $3,100+$800 = $3,900.)
Which Cost Estimate Is Right?
So which figure is right? If the MIT study is a good approximation of the real-world impact of cap and trade, how much will it cost U.S. households–$800, $3,100, or $3,900?
The answer depends on what the audience thinks you’re talking about. Opponents of cap and trade policies, such as the Waxman-Markey plan, make the point that the alleged “green recovery” program would be funded not by big businesses in the form of emissions allowance “revenues”, but rather by consumers who will ultimately shoulder the costs in the form of higher prices for everything those business produce. Professor Reilly doesn’t dispute that, and so for that reason the $3,100 figure is perfectly fine. Americans need to recognize that trillions of dollars in new auction revenues won’t be coming from the Tooth Fairy. Most voters won’t appreciate the subtle distinctions between an out-of-pocket expenditure versus a forfeited opportunity cost, and so Reilly’s own figure of $800, while defensible in a room of economists, would be very misleading in the political arena.
Adding the two types of cost—funding the auction revenues to the tune of $3,100, plus the adjustment costs of $800 because of the artificial scarcity imposed by cap and trade—to yield a grand total of $3,900 is also defensible, if we assume that most U.S. households do not benefit from additional government spending.
In other words, the $3,900 figure is an overestimate only to the extent that the government uses its auction revenues in truly productive ways. But surely a billion dollars spent by the federal government is not nearly as effective in promoting consumer welfare as a billion dollars spent by private households. For example, if each household in a city is forced to pay $20 per month to maintain a park, which the residents would only pay $5 per month voluntarily to patronize, then $15 per month per household is truly flushed down the toilet. It is money being siphoned away from taxpayers with no corresponding benefit to anybody. Government operations are usually negative-sum games, which, on average, make everyone on poorer.
Reilly is very naïve when he takes government spending as a fixed, “given” number, and then thinks auction revenues from cap and trade would lower the deficit. On the contrary, the influx of trillions in new receipts will give the politicians the ability to fund all sorts of new spending programs that they otherwise would not have the luxury of funding.
In a very real and economically correct sense, a federal cap and trade program will squander most of the resources that it puts at the disposal of federal politicians and bureaucrats. Under quite conservative estimates, this will mean several thousand dollars per US household once the program is fully underway. It is very misleading to tell voters that they will only shoulder $800 of the total economic cost, because this lowball figure assumes households enjoy their income to the same degree, whether they spend it themselves or politicians spend it for them.
The text of the ad follows
Seems like all of us are working harder in this economy just to make ends meet.
But the politicians in Washington, DC don’t seem to get it – voting to bailout Wall Street – rather than helping Main Street.
And just when you think that it can’t get worse – some in Congress are now pushing an energy tax that would be the largest tax hike in history.
Studies show that the bill, known as the Waxman-Markey Energy Tax, could cost our family’s more than $3,100 per year in new taxes.
And that’s not all – this tax will further cripple our already struggling economy – costing more American jobs.
Higher taxes and more job losses – what could Congress be thinking?
Call Congressman Charlie Melancon at (985) 876-3033. Tell him that we can’t afford the Waxman-Markey Energy Tax.
The Waxman Markey Energy Tax is a tax on all carbon-based energy – coal, oil, and natural gas. That means that 81.8 percent of the energy that fuels the State of Georgia will be taxed. Nearly all of the remaining 18.2 percent of Georgia’s energy comes from carbon-free nuclear, hydro, and biomass. Unfortunately, nuclear, hydro, and as much as half of Georgia’s biomass energy don’t count as “clean, renewable” energy under the “clean, renewable” electricity mandate included in the Waxman-Markey Energy Tax. In fact, less than 3 percent of the energy used to generate electricity in Georgia would be “government-approved” under the Waxman-Markey Energy Tax.
The text of the ad follows
Seems like all of us are working harder in this economy just to make ends meet.
But the politicians in Washington, DC don’t seem to get it – voting to bailout Wall Street – rather than helping Main Street.
And just when you think that it can’t get worse – some in Congress are now pushing an energy tax that would be the largest tax hike in history.
Studies show that the bill, known as the Waxman-Markey Energy Tax, could cost our family’s more than $3,100 per year in new taxes.
And that’s not all – this tax will further cripple our already struggling economy – costing more American jobs.
Higher taxes and more job losses – what could Congress be thinking?
Call Congressman John Barrow at (706) 722-4494. Tell him that we can’t afford the Waxman-Markey Energy Tax.
American Energy Alliance is a registered trademark of The American Energy Alliance.
