Cap-and-Trade Datapoint of the Day

I am very happy that the CBO has finally gotten around to costing out Waxman-Markey, so that we don’t have to put up with pseudoscientific scaremongering any more.

The Congressional Budget Office (CBO) estimates that the net annual economywide cost of the cap-and-trade program in 2020 would be $22 billion—or about $175 per household… households in the lowest income quintile would see an average net benefit of about $40 in 2020, while households in the highest income quintile would see a net cost of $245… Overall net costs would average 0.2 percent of households’ after-tax income.

A reasonable price to pay, I think, for massively reducing the economy’s reliance on oil imports and working to curtail the potentially catastrophic tail risk associated with global climate change. Note that ancillary benefits, such as economic and competitiveness advantages which flow from the private sector making significant investment in clean-energy technologies, are not included in this calculation; it doesn’t even include $22 billion a year in energy savings which will result from the act.

Note also that if there’s a faster-than-expected move from giving permits away to auctioning them, the scheme could in and of itself generate significant net benefits: the CBO assumes that only 17% of allowances would be sold in 2020, while fully 83% would be given away.

So yes, the ideal cap-and-trade bill would be much better than Waxman-Markey. But Waxman-Markey is vastly better than what we’ve got right now, which is nothing.

Comments

[Mad Hedge F...:]

Good story. I can tell you right now that cap and trade is going to win the political battle over a carbon tax, hands down. Don’t waste a nanosecond of your time even thinking about it. Nobody wants to be tarred with pushing a new tax, and Wall Street is gearing up to make a fortune in the new trading vehicle. Europe has already adopted the system, and a Paris based exchange called Bluenext, partnered with NYSE Euronext, trades Certified Emission Reduction credits (CERS’s). Some 4-6 million CER’s trade each day worth $50-$75 million. After peaking last year at €30, CER’s crashed to €7.5 in February and then bounced to €12.72 today. They are traded in 1,000 unit lots, and are backed up with far month futures contracts. Check out their cool website at www.bluenext.eu/. Morgan Stanley and Goldman Sachs have already set up trading operations in the instrument. The EC government grants CER’s to green companies, which them sell them to big polluters, which must buy them to expand their business. The costs are passed on to consumers. The system contributed to a 3.8% reduction in CO2 emissions in Europe last year. The current world market for carbon credits is $126 billion, but if the US joins the system that will jump by $1 trillion. I was involved in the creation of the Japanese equity warrant market in the early eighties, and I can tell you that new, poorly understood markets with spreads wide enough to drive a truck through are a license to print money for the early players. Perhaps there is hope after all for the legions of traders, market makers, brokers and analysts left unemployed by last year’s collapse.

Jun 22 11:09 AM

[dick streich:]

I don't agree. You really don't know what it will cost everyone and if it's like every other government program, it will be alot more than the estimates.
I consider the proposal to be another government tax that if implemented would have very little impact on how clean our air is, nor do I believe it will impact climate change.

Jun 22 11:20 AM

[SSALarry:]

.Europe's experience with Cap-and-Trade has been anything, but smooth. After implementation, CO2 emissions actually went up, and companies profited by selling their excess credits. In addition, accusation of cheating were made against several countries. Emissions did fall last year as Mad Hedge points out, but their is no proof that it is attributed to cap-and-trade, it is more likely attributed to a recessionary economy.

Mr. Simon mentions pseudoscientific scaremongering, but I would contend that his statement that the public would enjoy economic gains through investments in green energy and that we would "massively" reduce oil imports as pseudoscientific pie in the sky dreaming.

What is more likely to result, is companies who use energy will hire Wall Street brokers to trade their carbon accounts and make money for them. So Wall Street firms will make money, the Government will have another monitoring bureaucracy supported by the taxpayers, and we will still need and use fossil fuels

Jun 22 02:56 PM

[Henry Buttal:]

Hi Felix,

I took a quick search, but couldn't find the information you quoted. So let me make a quick comment on what you have posted here.
First off, I agree with Mad Hedge - it will be a cap & trade system, for no other reason because it avoids calling it a tax, and it sets the stage for potential international cooperation and trade.

As to the statement, the CBO appears to address the cost only in the year 2020; last time I checked, there is 10 years between here and there. What about the costs to get to that point?

In point of fact, Waxman-Markey bill add-ons will also cost American Taxpayers another $1 Billion to $2 Billion dollars over the next 10 years. Most of those obligations are currently unfunded, so this will predominantly be new expeditures (ie, either more taxes or debt). And that number doesn't actually include any economic impacts to households directly from the bill. Which, I might add, has been sold to the American Taxpayer as not having any household cost - clearly, that is not the case if the household impact in 2020 is what you have quoted here.

Finally, don't criticize "psuedoscientific scaremongering" and then post a link to an equally speculative "postage stamp a day" article. A realist (for example, someone like me who has had extensive experience with solar), recognizes the outcome is as likely to look like current corn ethanol economics as it is to look like a green dream of politician like Waxman.

Jun 22 03:11 PM

[JeffDB:]

That article had a link:

www.taxfoundation.org/... 4750.html

which contained this link:

www.taxfoundation.org/... s/show/24472.html

“Using RIMS II multipliers we estimate the broader economic impact of cap and trade. Depending on how the system is structured, cap and trade could reduce U.S. employment by 965,000 jobs, household earnings by $37.8 billion, and economic output by $136 billion per year or roughly $1,145 per household. Lawmakers weighing the costs and benefits of climate policy should be aware that cap and trade would impose a significant and regressive annual burden on U.S. households, and would not represent a “tax free” way to reduce greenhouse gas emissions.”

Jun 22 04:49 PM

[Tony Petroski:]

The author: "So yes, the ideal cap-and-trade bill would be much better than Waxman-Markey. But Waxman-Markey is vastly better than what we’ve got right now, which is nothing."

I vote for nothing.

If cap-and-tax succeeds in lowering planetary temperatures, I vote to raise them --it's freezing cold where I live.

If planetary temperatures go down too much, can we reverse the process to raise them up to the "correct" temperature?

Mr. Salmon. If you fancy yourself a journalist with an analytical eye, you would not be fooled by the prospect of a cost estimate of $175 per person including a subsidy/benefit for the "lower quintile." Cap and tax is going to have a devasting impact on the economy with few or no benefits. Free people don't have to be coerced into doing what is in their interests. They have to be forced to do what is in the interests of elites, in the present instant, elites that want to cool the planet.

Jun 22 06:35 PM

[JeffDB:]

On Jun 22 06:35 PM Tony Petroski wrote:

> Cap and tax is going to have a devasting impact on the economy with
> few or no benefits. Free people don't have to be coerced into doing
> what is in their interests. They have to be forced to do what is
> in the interests of elites, in the present instant, elites that want
> to cool the planet.

Economist Bjorn Lomborg, gave an interesting talk about an economic conference where many of the top economists from around the world tried to prioritize the world's problems based upon a "bang for the buck". Where would we get the most benefit per dollar spent.

Of the world's problems, global warming had the lowest rate of return.

www.youtube.com/watch?...

www.ted.com/talks/bjor...

Jun 22 07:51 PM

[john s. gordon:]

reducing our dependence on middle east oil, if achievable, will have the added benefit of allowing reduction in spending by the u.s defense department.
word of caution however - benefit/cost analyses done bu the u.s govt typically overestimate the benefits & underestimate the costs.
> jack

Jun 23 08:54 AM

[speculari:]

Here we go again! Lies, damned lies and then statistics!!!

Jun 23 09:03 AM

[ART005:]

Salmon, you need to do a lot more homework!! $175/person!!??

I suggest you get yourself invited to some power generation facilities around the country and talk to them about less than 10% increase in costs due to gov. scam to raise revenue to provide services to buy votes to empower incompetants such as community activists!

Jun 23 09:21 AM

[MSTauteur:]

Mr. Salmon,

Better to keep your mouth shut and have people think you're a fool.......


MSTauteur

Jun 23 09:37 AM

[billp37:]

Coal lobby.

-----Original Message-----
From: Scott Barker, America's Power Army [mailto:sbarker@americ... Behalf Of Scott Barker, America's Power Army
Sent: Tuesday, June 23, 2009 8:00 AM
To: [e-mail]
Subject: Climate Change Legislation: Update

Dear William:Last week I wrote you that you needed to act and urge your Member of Congress to add consumer protection to the climate change bill (you can still do that by using our Web site to send an e-mail.

Thanks, in part, to people just like you speaking out and asking for changes to the bill that will protect consumers from sky-rocketing energy prices, the momentum to rush the bill through before July 4 has slowed. That allows more time for legislators to consider important changes to the bill and that means consumers have more time to voice their opinions.

Here's the quick review on the legislation: Congress is working on climate change legislation to reduce emissions of carbon dioxide and other greenhouse gases. The problem is that most everyone agrees that the bill will raise energy prices. America's Power Army is asking Congress to add consumer protections against higher energy prices. You can find out more by visiting our Web site. If you've already written and/or called – thank you!

If you haven't sent an e-mail to your Representative, now is the time to act. You can also use our "Send to a Friend" feature and ask your friends, family and colleagues to do the same.

Let me know if you have any questions.

Thanks,
Scott Barker
On behalf of America's Power Army

America's Power Army · PO Box 1638 · Alexandria, VA 22314 · Tel: [phone] | Fax: [phone]-ABEC©2009 America's Power Army

Jun 23 10:44 AM