The Cost of Climate Regulation for American Households

On March 2, 2009, the George C. Marshall Institute released The Cost of Climate Regulation for American Households which documents the economic burdens a cap-and-trade program to control greenhouse gas emissions will impose on American households.

“As the nation?s policy makers consider caps on greenhouse gas emissions, taxes on carbon dioxide, or other measures to control greenhouse gas emissions, namely energy use, they will regulate economic activity and personal behavior with the real costs being borne by the already stressed families of the United States,” Institute President Jeff Kueter said. “Policy proposals that would drastically alter our energy system or confront the climate change risk must be considered in light of turbulent and uncertain economic circumstances. President Obama and the Congressional leadership have signaled their support for cap-and-trade. The Cost of Climate Regulation for American Households ought to temper the enthusiasm for this approach and encourage our leaders to examine other alternatives.”

Authored by Bryan Buckley and Sergey Mityakov of Clemson University, the study discusses the burdens that could be placed on families throughout the United States. Using the popular cap-and-trade proposal discussed in the U.S. Senate last year as a point of reference, the study examines the likely impact of that system on personal consumption and welfare, national economic growth, employment, and the price paid for energy (electricity, natural gas, and gasoline).

The authors find that the constraints posed by the Lieberman-Warner cap-and-trade approach is equivalent to a constant (in percentage terms) consumption decrease of about 1% each year, continuing to 2050. Put another way, the cap-and-trade approach is the equivalent of a permanent tax increase for the average American household, which was estimated to be $1,100 in 2008, would rise to $1,437 by 2015, to $1,979 in 2030, and $2,979 in 2050.

Reviewing a host of recent studies, Buckley and Mityakov show that estimates of job losses attributable to cap-and-trade range in the hundreds of thousands.

The price for energy paid by the American consumer also will rise. The studies reviewed showed electricity prices jumping 5-15% by 2015, natural gas prices up 12-50% by 2015, and gasoline prices up 9-145% by 2015. As an illustration, gasoline would suffer a 16 cent price increase per gallon at the low end of the estimates to a $2.58 penalty at the high end (using the January 2009 reported retail price of $1.78 per gallon).

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