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Fuzzy Math on Capntrade



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Last week our very own Jim Geraghty asked why ABC’s Jake Tapper receives such flak from conservatives on Twitter, when he is one of the most prominent people actually holding the White House to account. Like Jim, I find this mystifying. That’s why I’m glad to see Jake has put together a generally fair account of the increasingly complicated debate surrounding the release of the Treasury’s internal documents about the likely cost of President Obama’s plans for cap-and-trade. Jake is really on the money when he examines the hand-waving that is the reality behind the argument that the cost estimates aren’t about the Waxman-Markey Bill:

Chris Holder [sic, actually Planet Gore's Chris Horner], the senior fellow at CEI, pointed out that the Treasury Department originally released the memo with the $100 billion-$200 billion figure redacted — for no obvious reason other than it was a “highly embarrassing” figure, in Horner’s view. Moreover, the Treasury Department only coughed up five documents and e-mails, when CEI expected 50 documents and e-mails. CEI needs to decide in the next 30 days whether or not to sue for more.

And though the Waxman-Markey legislation is quite different from the cap and trade hypothesis in the memo, the Obama administration’s original position was in support of a 100 percent auction. As Congress is really only at the beginning of the legislative process on cap and trade, the White House’s view is not irrelevant.

It’s also worth asking if the ultimate amount of revenue — even with rebates to consumers — is of so little value. Do Americans really think those costs won’t end up impacting them in some way eventually? It may be politically savvy to tell the American people that this will cost them just a postage stamp a day, but is that the true ultimate cost of revenue that the administration argued in theory could possibly be “equal in size to the corporate income tax”?

Peter Orszag is the president’s budget director, but back when he was director of CBO, in April 2008, he testified that “if firms that must purchase allowances were unable to pass those costs along, their profits would fall. More likely, some substantial portion of those costs would be passed along to others in the economy, such as consumers, in the form of higher prices, and employees, in the form of lower wages. Lower wages would reduce federal revenues from income and payroll taxes. An increase in the price level would reduce income taxes — because the tax system is indexed to prices — and increase expenditures for indexed benefits, such as Social Security. Those changes would offset some of the revenues from the allowances.”

Orszag added that under “a cap-and-trade program, firms would not ultimately bear most of the costs of the allowances but instead would pass them along to their customers in the form of higher prices. Such price increases would stem from the restriction on emissions and would occur regardless of whether the government sold emission allowances or gave them away.”

As as President Obama himself said (in another claim examined by Politifact) in January 2008, ”under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket….Because I’m capping greenhouse gases, coal-powered plants, you know, natural gas, you name it, whatever the plants were, whatever the industry was, they would have to retrofit their operations. That will cost money, they will pass that money on to consumers.”

Obviously, the Waxman-Markey bill makes efforts to mitigate such problems, but no one can honestly argue that the bill the president ultimately signs will absolutely avoid these issues entirely.

However, I’d like to pay most attention to this conclusion:

Cap and trade is a complicated issue that demands facts and transparency. Opponents would do well to keep their arguments in line with reality, refraining from fuzzy math and invented claims.

We can argue all day about the appropriateness or not of Declan McCullagh’s back-of-the-envelope calculation of costs, but there remain some very specific, unfuzzy estimates of the cost of the Waxman-Markey Bill itself. The Heritage Foundation analysis says:

The annual cost of emissions permits to energy users will be at least $100 billion by 2012 and could exceed $390 billion by 2035

The American Council on Capital Formation analysis says:

High energy prices, fewer jobs, and loss of industrial output are estimated to reduce U.S. Gross Domestic Product (GDP) by between $419 billion and $571 billion by 2030

Those numbers aren’t fuzzy, and are in line with the Treasury estimates, even given the bait-and-switch of an initial period of 15% auction.

If you want real fuzzy math, try the claim that the Waxman-Market Bill will cost but a postage stamp a day in 2020.

As for invented claims, the recent one that Waxman-Markey represents “a good investment for the United States” is one that really doesn’t bear much probing.

Finally, the question that is never answered during all of this is whether, even taking the assumptions behind Waxman-Markey as read, is whether it will actually deliver any emissions reductions worth talking about. The Breakthrough Institute doesn’t think so.

Anyway, kudos to Jake Tapper for asking some of the questions that need asking, and being rightly skeptical of the answers he is being given.



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