Barbara Boxer

Senate Democrats Introduce Their Job Creating Cap-and-Trade Bill

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Senators Barbara Boxer (D-Calif.) and John Kerry (D-Mass.) are unveiling their proposed cap-and-trade scheme today. Their bill aims to dramatically reshape America's energy economy by rationing the emissions of globe-warming carbon dioxide produced through burning fossil fuels.  Boxer and Kerry have set an even more ambitious goal of reducing overall emissions by 20 percent below the levels emitted in 2005. Waxman-Markey bill passed by the House of Representatives in June would reduce emissions by 17 percent by that date.

Proponents and opponents of carbon rationing have come out swinging. Just in time for the Senate bill's release David Roland-Holst, who is an adjunct professor in the Department of Agricultural and Resource Economics Department at the University of California, Berkeley, issued a report that finds that carbon rationing will create lots of jobs and boost incomes. The factsheet detailing the results of the study claims that the full adoption of the House bill's

…pollution reduction and energy efficiency measures would create between 918,000 and 1.9 million new jobs, increase annual household income by $487-$1,175 per year, and boost GDP by $39 billion-$111 billion. These economic gains are over and above the growth the U.S. would see in the absence of such a bill.

Simultaneously, Grover Norquist, head of the conservative group, Americans for Tax Reform, sent an open letter to Senators Boxer and Kerry, pleading with them "not to introduce a national energy tax bill (cap-and-trade) that will increase energy costs and cripple our economy."  The letter was signed by 503 lawmakers, business leaders and citizen organizations representing millions of taxpayers. As evidence for economic harm that the Senate bill would cause, Norquist's open letter cited a report analyzing the less stringent Waxman-Markey bill from the conservative Heritage Foundation. That report found:

  • Cumulative gross domestic product (GDP) losses are $9.4 trillion between 2012 and 2035;
  • Single-year GDP losses reach $400 billion by 2025 and will ultimately exceed $700 billion;
  • Net job losses approach 1.9 million in 2012 and could approach 2.5 million by 2035. Manufacturing loses 1.4 million jobs in 2035;
  • The annual cost of emissions permits to energy users will be at least $100 billion by 2012 and could exceed $390 billion by 2035;
  • A typical family of four will pay, on average, an additional $829 each year for energy-based utility costs; and
  • Gasoline prices will rise by 58 percent ($1.38 more per gallon) and average household electric rates will increase by 90 percent.

I don't know if the Heritage findings are anywhere near accurate. Everything depends on what the assumptions in their econometric model are. But with all due respect to brilliance of Berkeley economists, the Berkeley findings are just not plausible. It's very hard to understand how increasing energy prices and deploying a plethora of new regulations will create more jobs than they destroy and boost incomes, to boot.

The new Berkeley study mirrors the findings of a similar 2008 study by the California Air Resources Board that reassured Californians that they can make money hand over fist selling each other wind turbines and electric cars. However, using the California Air Resources Board's own figures, a report commissioned by California Small Business Roundtable found that the annual implementation costs of California's own cap-and-trade scheme would likely result in a loss of $182 billion in gross state output and 1.1 million fewer jobs. Harvard University economist Robert Stavins later pointed out to the Wall Street Journal that if these types of activities are a net boon for businesses and the economy, "why would you need to impose regulations like cap and trade?"

Look, we may need to limit carbon dioxide emissions, but proponents must please stop pretending that cap-and-trade schemes are really jobs programs in disguise.