Cap and Trade: We Can’t Tell Them it Costs That Much

By Jeff Harding.

The Great Cap and Trade Kerfuffle between the Competitive Enterprise Institute (CEI), a libertarian think tank, and the Center for American Progress, a progressive think tank has been fun to watch. Really fun to watch.

The Center for American Progress was founded by John Podesta, a former Clinton Chief of Staff, ultra-liberal, apparent socialist, and believer in UFOs. The Center was founded as a think tank for the Democratic Party and supports every “progressive” cause you can think of. Its major supporters include the ubiquitous liberal funder, George Soros. It raises about $25 million a year.

On the other side, the CEI is a feisty libertarian, free market organization that does well fighting on the political front in Washington. It frequently engages in lawsuits against the government. Founded by Fred Smith, whom I have met, the organization picks its fights well. But, compared to its progressive opponent, its budget is less than $4 million. It supporters include the Koch family, oil companies, The Ford Fund, and Coca Cola.

CEI did some sleuthing on the costs of the cap and trade plan proposed and supported by the Obama Administration. The plan assigns a limit on carbon dioxide production to each business and auctions off or gives away permits to emit a certain amount of CO₂.

Questions have been raised about the cost of this program to American families. Of course, there are other questions raised, such as will this program have any impact on global warming? No. That aside, it was suspected that the true cost of this program was higher than the Administration admitted. In a report of the incident by CBS reporter Declan McCullagh:

The Obama administration has privately concluded that a cap and trade law would cost American taxpayers up to $200 billion a year, the equivalent of hiking personal income taxes by about 15 percent.

A previously unreleased analysis prepared by the U.S. Department of Treasury says the total in new taxes would be between $100 billion to $200 billion a year. At the upper end of the administration’s estimate, the cost per American household would be an extra $1,761 a year.

A second memorandum, which was prepared for Obama’s transition team after the November election, says this about climate change policies: “Economic costs will likely be on the order of 1 percent of GDP, making them equal in scale to all existing environmental regulation.”

The documents (PDF) were obtained under the Freedom of Information Act by the free-market Competitive Enterprise Institute and released on Tuesday. …

One odd point: The document written by Jaffee includes this line: “It will raise energy prices and impose annual costs on the order of XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.” The Treasury Department redacted the rest of the sentence with a thick black line.

The Freedom of Information Act, of course, contains no this-might-embarrass-the-president exemption (nor, for that matter, should federal agencies be in the business of possibly suppressing dissenting climate change voices). You’d hope the presidential administration that boasts of being the “most open and transparent in history” would be more forthcoming than this.

The day after CBS posted the above report, Mr. McCullagh notes the following:

So the Center for American Progress replied by posting a response alleging I was “promot[ing] another false CEI attack on clean energy reform.”

CEI stands for the Competitive Enterprise Institute, a free-market think tank in Washington, D.C. that obtained some internal Treasury Department documents through the Freedom of Information Act. The Center for American Progress and CEI are — approximately — on the opposite sides of many policy debates, and have been sniping at each other for as long as I can remember. The center has claimed CEI wants to “destroy the climate for centuries” and is staffed by “pathological disinformers,” while CEI has says the center wants to grow “young statists” and, besides, is just wrong on general principles.

As a somewhat contentious person myself, I appreciate a good fight. Especially when its personal.

According to McCullogh in a follow-up article, the Center claimed that CEI was wrong because (with McCullagh’s response in block quotes):

1. The cost of President Obama’s cap and trade proposal was already well-known:

[T]he Center for American Progress implies that Obama mentioned the $100 billion to $200 billion figure in his State of the Union speech, which is not true (CBS News has posted the transcript).

2. The House of Representatives legislation went in a slightly different direction anyway:

[I]t’s true that the House bill is not the same as what Obama had proposed, but the final version has yet to be written.

3. The tax revenue collected will be dispersed to good causes:

[T]he tax revenue might end up being directed at income tax cuts (or rescuing kittens and feeding orphans, for that matter), or it could end up being wasted on boondoggles. As any D.C. think tank should know, that’s no rare occurrence in our nation’s capital.

4. The overall benefits outweigh the costs:

Cap and trade’s justification would be stronger if U.S. industries cut their greenhouse gas emissions enough to matter — rather than the other possibility, which is jobs shifting offshore to countries like China, India and Vietnam that have decided not to levy new greenhouse gas taxes. If that happens, the law’s effect would be to make foreign countries more competitive at the expense of American firms.

But wait, there’s more.

The CEI demanded and got an un-redacted copy of the Treasury Department document. The upper range cost estimate was $300 billion, not the $200 million. Using McCullagh’s math, I calculate the cost would be $2,651 per American household.

According to CEI:

The new information reveals that Treasury estimates that not only could cap and trade cost $300 billion annually, “domestic policies to address climate change and the related issues of energy security and affordability will involve significant costs and potential revenues, possibly up to several percentage points of annual GDP (i.e. equal in size to the corporate income tax).” …

“Today’s release explains why the administration initially sought to keep its internal aspirations and expectations from the public: The cost of a cap-and-trade plan to businesses and consumers will be enormous,” said [CEI Senior Fellow Christopher] Horner. ”This candid perspective of what could prove to be the biggest tax increase in our nation’s history now must be openly debated before the American public”.

Hat tip to Lloyd G. for some great research.