Gas Prices Will Not Increase and Your Fairy Godmother Will Turn Your Hummer into a Prius

The Lieberman-Warner-Boxer cap-and-trade climate change bill disappeared from the Senate last week, but not before certain senators uttered, let's just say, some untruths about what its effects on energy prices would have been. For example, Sen. Barbara Boxer (D-Calif.) assured the public, "There is no increase in gas prices."

True, the bill does not directly increase gasoline prices, but the whole point of a cap-and-trade scheme is to ration carbon dioxide emissions. Such rationing aims to increase the price of fossil fuels relative to carbon neutral sources of energy and thus encourage consumers and energy producers to shift to higher-priced climate-friendly energy. In other words, the bill Boxer was championing would in fact increase the price of gasoline and she surely must know that.

As Competitive Enterprise Institute analyst William Yeatman correctly notes:

Under the Lieberman-Warner "cap and trade" scheme, industrial users and suppliers of energy would have to buy the right to emit greenhouse gases from an annual government-run auction, whereas now these emissions are free.

But businesses would not simply absorb higher input costs; instead, they would pass along the burden to consumers. That's why, in a report released last April, the Congressional Budget Office says that "most of the cost of meeting a cap on CO2 emissions would be borne by consumers, who would face persistently higher prices for products such as electricity and gasoline."

Yeatman then cites a number of estimates for what gasoline prices under a cap-and-trade scheme might be:

• The independent analysis by Science Applications International Corporation (SAIC) predicts gasoline prices will increase between 60% and 144% by 2030.
• The EPA estimates that the Lieberman-Warner bill will increase fuel costs an additional 53 cents per gallon by 2030 and by $1.40 by 2050.
• An independent study by NERA Economic Consulting estimates that the price of motor fuel will rise by 48 cents per gallon by 2030.
• The Energy Information Agency (EIA) estimates gas prices will increase anywhere from 41 cents per gallon to $1.01 per gallon by 2030.

To protect the climate it may be necessary to impose a cap-and-trade scheme or carbon taxes, but please don't insult our intelligence by lying about its effects on gasoline and other energy prices.

Disclosure: As far as I know, I am still an adjunct scholar at CEI, but its president and my friend, Fred Smith is notably unhappy about my views on climate change policy.