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June 2, 2008

Cap & Trade Rhetoric: Up is Down, Taxes Create Jobs, Less Growth is Good Growth

June 2, 2008
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By William Koetzle

 

In her weekly radio address on Saturday, U.S. Senator Barbara Boxer (D-CA) urged support for the carbon “cap and trade” bill (S. 2191, the Lieberman-Warner Climate Security Act), on which the Senate begins debate today.  She urges support, not only on the basis that it’s needed to save the Earth as we know it from the evils of carbon dioxide, but because it “will create millions of jobs” and “put us on the path to energy independence.” 

 Senator Boxer’s claims mirror the common refrains of those who support government intervention to limit greenhouse gas emissions. In the first part of the refrain, proponents exaggerate the state of knowledge about our complex climate system and the nature of the problem: “…the overwhelming majority of scientists say that the earth is in peril if we don’t act now…40 percent of God’s creatures could face extinction…unchecked global warming will lead to severe conflict and war as droughts, floods and rising sea levels create huge numbers of desperate refugees.”

As the refrain continues, proponents proclaim that taxing economic activity via a cap on greenhouse gas emissions will actually create jobs, rather than harm the economy.  And finally, the refrain ends with the assertion that increasing the cost of using America’s most abundant energy source (coal) will actually increase our energy independence, not our foreign dependence.

Of course, the problem with this refrain is that it ranges from the hyperbolic to the absurd. For example, while many scientists are indeed concerned about the atmospheric concentrations of greenhouse gasses, the Earth’s climate system is complex and not completely understood and the critical role of features of the system (i.e. clouds) remain a mystery.

The claims of economic growth and energy independence, however, strain credulity. Proponents of Lieberman-Warner act as if this Bill should have been considered as part of an economic stimulus plan. Consider, however, that two federal agencies, the EPA and EIA, and a host of think tanks and academic institutions, have examined the economic ramifications of S.2191. While these models are all different in terms of assumptions and methodology, they are all the same in one respect: all clearly argue that S.2191 increases the cost of consuming energy — whether it is in the form of electricity, natural gas, gasoline, or diesel – and thus, results in lower economic growth and job loss. The fact that cap-and-trade mandates cost should surprise no one – such proposals only work if they impose significant cost; it is the increase in cost of using energy that brings about the change in behavior the authors of such mandates are seeking. 

Similarly, the energy independence argument runs counter to common sense: this bill creates huge disincentives to the use of the United State’s most abundant energy resource (coal) and, of course, does nothing to open America’s vast store of petroleum and natural gas resources which are currently off-limits to production. In fact, a portion of this bill, the “low carbon fuel standard” actually threatens the use of oil from our number one supplier – Canada.

Supporters of Lieberman-Warner would have one believe that up is down; that we can have our cake and eat it too; that increasing the cost of something makes it cheaper. Do not be fooled, however.  This bill would increase the cost of using our most prevalent forms of energy: coal, natural gas and petroleum. These cost increases will be felt by every consumer of energy in this country – families, farmers, small businesses, and manufacturers – and will result in lower economic growth and fewer jobs.

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