A Project of The Annenberg Public Policy Center

Cantor Sticking with $3,100 Cost Estimate

In a post announcing the launch of a video news release questioning the priorities of House Speaker Nancy Pelosi, the Office of the Republican Whip Eric Cantor of Virginia says that the American Clean Energy and Security Act, which Pelosi helped usher through the House of Representatives, “will impose a national energy tax of up to $3,100 on all Americans and slam small businesses with higher energy bills, causing the loss of millions of jobs.”

The video, titled “Number One Priority,” says that “in a time of economic uncertainty, when unemployment is nearing 10 percent … and spending by the president and Democrat Congress are out of control,” Pelosi’s top priority is “creating a national energy tax.” The bill the video refers to, sponsored by Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.), passed two days after the video’s release, and it would cap greenhouse gas emissions at 17 percent below 2005 levels by 2020 and 83 percent below 2005 levels by 2050.  But the $3,100 figure mentioned in the post has been questioned repeatedly.

As we previously wrote in our article “Cap and Trade Cost Inflation,” the $3,100 price tag that Republicans have been citing was calculated using a 2007 study by the Massachusetts Institute of Technology. But one of the study’s coauthors called the GOP’s use of the study “simplistic and misleading” and calculated, based on the same study, that the true cost of a cap-and-trade system to American households would be closer to $800 per year. The study’s coauthor also noted that the report was based on a past cap-and-trade proposal — not the Waxman-Markey bill, or even what Obama proposed in general as a part of his budget back in February.

And Cantor’s claim of a $3,100 “national energy tax” took another hit recently with the release of an analysis by the nonpartisan Congressional Budget Office, which found the cost of the bill making its way through Congress to be a lot less than advertised by Republicans. According to the CBO, the bill would cost American households an average of $175 in 2020, at the point when the legislation would have been in affect for eight years:

CBO, June 19: [T]he 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. That figure includes the cost of restructuring the production and use of energy and of payments made to foreign entities under the program, but it does not include the economic benefits and other benefits of the reduction in GHG emissions and the associated slowing of climate change.

CBO notes, however, that the $175 average cost does “not reveal the wide range of effects that the cap-and-trade program would have on households in different income brackets.” According to CBO, “households in the lowest income quintile [lowest one-fifth] 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.” In addition, the report says “[h]ouseholds in the second lowest quintile would see added costs of about $40 on average, those in the middle quintile would see an increase in costs of about $235, and those in the fourth quintile would pay about an additional $340 per year.” Additionally, the CBO says that its analysis does not include the benefits, economic or otherwise, of reducing greenhouse gas emissions — which can be difficult to quantify.

The CBO analysis also says it does not include certain features of the bill, such as “federal efforts to speed the development of new technologies and to increase energy efficiency by specifying standards or subsidizing energy-saving investments,” which may increase costs. CBO notes that “[t]he incidence of gains and losses would be considerably different once the free allocation of allowances had mostly ended.”

The Wall Street Journal published a critical editorial saying that the analysis leaves out other important factors. For example, the report says that the “resource cost,” which was included in the CBO’s calculation of the net cost, “does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap.” And the estimate is for 2020 only, before some of the bill’s tougher restrictions would become a factor.

According to the Journal, “[t]he reality is that cost estimates for climate legislation are as unreliable as the models predicting climate change.” While we won’t agree or disagree with that statement, we can say that the cost to American households as a result of implementing a cap-and-trade program is anything but certain. And even the CBO’s estimate of the potential costs is subject to change as the bill now makes its way to the Senate, where key details about the way the bill would work may be altered.