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A Project of The Annenberg Public Policy Center

Boehner and the Cost of Cap and Trade

On Sept. 20 on NBC’s "Meet the Press," House Minority Leader John Boehner of Ohio claimed that according to the Department of Treasury, the Democrats’ proposed cap-and-trade system would be costly for American families:

Boehner, Sept. 20: It’s a cap-and-trade system, this big giant tax on the American people that this week, we just find out, the Treasury Department said will cost the average family $1,700 per year.

That’s not true. That estimate came from CBS News blogger Declan McCullagh, not the Treasury Department. McCullagh, writing for the blog "Taking Liberties," said that "[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."

McCullagh was referring to an internal Treasury Department memo. Christopher Horner, a senior fellow at the Competitive Enterprise Institute, which describes itself as a "public interest group dedicated to free enterprise and limited government," obtained a redacted copy of the previously unreleased document via a Freedom of Information Act request. (The Treasury later released an unredacted copy.) But the $1,761 figure that McCullagh referred to doesn’t appear in the document CEI obtained.

McCullagh came up with the figure by taking $200 billion, the Treasury document’s high-end estimate for revenue the government could possibly collect from a cap-and-trade program, and dividing it by 113.5 million, the current number of U.S. households, according to the Census Bureau. The Treasury documents don’t actually contain an estimate for costs to households at all. Plus, Treasury wasn’t examining specific legislation, and McCullagh’s rough calculation doesn’t take into consideration financial assistance that Democrats have proposed giving to families to offset higher energy costs.

Alan B. Krueger, Treasury’s assistant secretary for economic policy, has called McCullagh’s estimate "flat out wrong." According to a spokeswoman for the department, the memos were not based on an independent analysis of any specific proposal, including the American Clean Energy and Security Act of 2009, cosponsored by Democratic Reps. Henry Waxman of California and Ed Markey of Massachusetts. That bill, which would cap greenhouse gas emissions at 17 percent below 2005 levels by 2020 and 83 percent below 2005 levels by 2050, passed the House in June. Instead, the projections that McCullagh used in his calculation were based on the president’s earlier outline of a cap-and-trade program, as well as information in the public domain about what cap-and-trade might potentially cost, the Treasury spokeswoman told us in an e-mail.

There are major differences between Obama’s design and the legislation pending in Congress. Obama proposed a system where all regulated firms would have to purchase an allowance for each ton of carbon, or its equivalent, that it emits. In contrast, the bill that narrowly made it through the House initially gives away approximately 80 percent of the allowances at no cost to firms, according to a summary of the bill.

CEI’s Horner argues that the memo should not be discounted simply because it doesn’t refer specifically to the House bill. He told us in an e-mail that, despite House passage of the Waxman-Markey bill, Obama hasn’t abandoned his own proposal. "I look forward to the administration disavowing its recently reaffirmed position that cap-and-trade means auctioning 100% of the allowances," he said. Actually, though, Obama hasn’t been pushing his proposal, and the White House issued a statement that was extremely supportive of the House bill just after it passed:

White House, June 26: Today, the House of Representatives took historic action with the passage of the American Clean Energy and Security Act. It’s a bold and necessary step that holds the promise of creating new industries and millions of new jobs; decreasing our dangerous dependence on foreign oil; and strictly limiting the release of pollutants that threaten the health of families and communities and the planet itself. Now it’s up to the Senate to take the next step. And I’m confident that in the coming weeks and months the Senate will demonstrate the same commitment to addressing what is a tremendous challenge and an extraordinary opportunity.

The president also said that lawmakers "spent months carefully crafting a plan that’s sensitive to vulnerable communities and industries, and that ushers in a critical transition to a clean energy economy without untenable new burdens on the American people."

McCullagh also assumed that all of the costs imposed on firms through the program would be passed down to consumers in the form of higher prices on products, without giving those households any offsetting financial assistance. But under Obama’s initiative, the government would use the revenue from selling emission allowances to fund "clean energy" investments, continue the administration’s "making work pay" tax credit ($400 for individuals and $800 for couples) and give financial aid to "vulnerable families, communities, and businesses to help the transition to a clean energy economy." The Waxman-Markey bill also establishes programs and distributes allowance money in an attempt to reduce the potential cost to consumers. For example, the bill specifically calls for revenue collected from auctioning 15 percent of the allowances to be directed back to lower income households to ease the impact of price hikes.

And in fact, even though Obama once said, back on the campaign trail, that energy costs would "necessarily skyrocket" as a result of capping emissions levels, nonpartisan analyses of current legislation suggest that the cost to consumers would be lower than McCullagh’s $1,761 per household. The Congressional Budget Office estimates that under the House-passed bill "the average per-household loss in purchasing power would be $90 in 2012 and $925 in 2050 and would average about $455 per U.S. household per year over the 2012–2050 period." In the year 2020, CBO calculated, the average would be about $160.