Cap-and-trade datapoint of the day

By Felix Salmon
June 22, 2009

I am very happy that the CBO has finally gotten around to costing out Waxman-Markey, so that we don’t have to put up with pseudoscientific scaremongering any more.

The 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… households in the lowest income quintile 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… Overall net costs would average 0.2 percent of households’ after-tax income.

A reasonable price to pay, I think, for massively reducing the economy’s reliance on oil imports and working to curtail the potentially catastrophic tail risk associated with global climate change. Note that ancillary benefits, such as economic and competitiveness advantages which flow from the private sector making significant investment in clean-energy technologies, are not included in this calculation; it doesn’t even include $22 billion a year in energy savings which will result from the act.

Note also that if there’s a faster-than-expected move from giving permits away to auctioning them, the scheme could in and of itself generate significant net benefits: the CBO assumes that only 17% of allowances would be sold in 2020, while fully 83% would be given away.

So yes, the ideal cap-and-trade bill would be much better than Waxman-Markey. But Waxman-Markey is vastly better than what we’ve got right now, which is nothing.

(HT: Avent)

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Comments
12 comments so far

Seriously, are you and or people like you clueless or just can’t think past step one? If auctioning off 17% of the credits ends up costing $175 a household why would the net benefit be better if we sold more. I’m thinking the cost passed on would be higher. Probably in proportion to the 17%. If not, then why not just raise the cost to a million a ton, that would cut down usage a lot, and I’m sure not hurt the econ. Course this is assuming that businesses don’t just move to “emerging” econs like India. Don’t say they won’t because that’s the industry I work in. Once I can’t help a co save any more money here we help move them overseas. And don’t criticize that either. Not too many of them UAW jobs left you dems like to say are good for us, or maybe you think if we just raised wages for more jobs only good things would happen and we’d keep more jobs here.

Posted by Eric R | Report as abusive

A reasonable price to pay….. give me a break.

Posted by jason | Report as abusive

Seriously, are you and or people like you clueless or just can’t think past step one? If auctioning off 17% of the credits ends up costing $175 a household why would the net benefit be better if we sold more. I’m thinking the cost passed on would be higher. Probably in proportion to the 17%. If not, then why not just raise the cost to a million a ton, that would cut down usage a lot, and I’m sure not hurt the econ. Course this is assuming that businesses don’t just move to “emerging” econs like India. Don’t say they won’t because that’s the industry I work in. Once I can’t help a co save any more money here we help move them overseas. And don’t criticize that either. Not too many of them UAW jobs left you dems like to say are good for us, or maybe you think if we just raised wages for more jobs only good things would happen and we’d keep more jobs here.

Do you think or just mumble stuff like “UAW jobs? No more than “Repubs” sold the us auto companies down the drain by giving illegal anti-free market subsidies to the foreign competiters so they could try and kill it.

You are the filth of America and need purged.

Posted by The Rage | Report as abusive

According to quick googling, we import 3.5B bbl, at a cost of ~$70 each, for $1/4 trillion cost. What kind of dent are they predicting for the growth of demand, and can they really isolate this to energy usage or isn’t it really growth in general?

Posted by NE1 | Report as abusive

At such a low cost, I would assume the reduction would be insignificant. The switching costs to a new cleaner energy source would be much higher.

But go ahead and feel good about it, that is what the bill was designed to do.

Posted by Marc | Report as abusive

one mention of AGW and wingnutters swarm.

Hmmmm…

Posted by sunsetbeachguy | Report as abusive

As per a leaked memo from the Obama administration, cap and trade would reduce household income by more than $7,000 each and every year.
http://www.heartland.org/publications/en vironment%20climate/article/25508/Econom ic_Studies_Support_Leaked_Memo.html

Obama’s ACES Act (cap and trade), however, will cost us much, much more than $7,000 per household! It will cost many of us our businesses. It will cost many of us our jobs. It will cost all of us our freedoms and our future.

No patriotic and informed American can support the ACES Act (cap and trade), based on the global warming scam.

Cap and Trade “would be the equivalent of an atomic bomb directed at the U.S. economy—all without any scientific justification,” said famed climatologist Dr. S. Fred Singer. It would significantly increase taxes and the cost of energy, forcing many companies to close, thus increasing unemployment, poverty and dependence.

Cap and trade represents huge taxes and cost increases, which will hurt mostly the poor and the middle class. Cap and trade will give dictatorial powers to Obama and will further enrich his billionaire friends (Gore, Soros, Goldman Sachs, Obama’s Chicago Climate Exchange friends, GE, the United Nations, etc.) — all at our expense and at the expense of our children and grandchildren.

Those brainwashed to the point of wanting to destroy the economy to “prevent global warming” are behaving like the most primitive human beings who were duped into believing that human sacrifices would ensure them good weather. Human beings don’t have the power to control climate! And killing the economy will not help the environment. Poor countries can’t protect the environment. Just look at Haiti!

Posted by AntonioSosa | Report as abusive

1. Waxman-Markey made Very Simple:

Electricity generation (coal/gas) and transport (automobiles) cause 80% of emissions – a focus on them alone reaches first phase 2020 reductions without elaborate expensive cap and trade solutions.

All other industry is only brought on board in second phase reduction 2020 as judged needed there and then.
Win-win situation: energy changes (incl grid restructuring) to electricity and transport, benefit
Americans regardlless of emission reductions

Cost to consumer is kept down by long term loan finance, fed/state guaranteed to keep down interest rates, slow payback in consumer electricity bills or car cost.

Understanding cap and trade + why it is bad
= http://ceolas.net/#cce5x

2.RE
The Congressional Budget Office (CBO) costing

The assumption is that all energy efficiency legislation is GOOD for consumers.

WRONG.
Inefficient products need to have special advantages or noone would want them.
The fact is that efficiency regulation on a product sacrifices performance, construction and price features, and does not necessarily give the savings suggested anyway.

See
http://ceolas.net/#cc2x
onwards regarding efficiency regulation effect on buildings, lightbulbs, cars, dishwashers and other products

As I read the CBO report, it assumes the state of now with only a few references to how this might (should) encourage future efficiencies.

Putting politics aside, other countries – notably the UK next year, if I remember correctly – are instituting c&t so one question is whether not having it is a competitive advantage or disadvantage. If you look only at current costing, you get one answer but there is more because companies are driven by incentive – which is often a stick and not a carrot – to change.

My point is really pretty simple. We are torn by a desire to compete as a low-mid cost producer because that is our history. My belief is we’ve lost that battle, first at the low end and now in the middle. I would say we need to learn how to operate more efficiently given constraints, meaning we accept that we’re a relatively high cost producer and become better at that. Like Germany has as they’ve become the largest exporter with an economy much smaller than ours.

So my argument is that resisting constraint because it imposes cost ignores the importance of constraint as a shaping tool – and underestimates the ability of American companies to prosper. Our best companies impose constraints on themselves, as with GE’s internal mandate that they be 1 or 2 in every one of their competitive fields – and how that translated into demands for return on capital, etc.

I make the same argument with regard to health insurance; it’s becoming obvious that our system of dumping costs on the employees and trying to reduce benefits on a company-by-company basis (and historically on a region by region basis within the US) is making our companies less competitive overall. Their companies have a cost assurance that allows them to focus on investment, with the cost of health acting as a given constraint across the entire scope of their structure. One firm in our structure has an advantage over another firm in our structure and my belief is we need to make health a general constraint rather than a firm level one.

Posted by jonathan | Report as abusive

that’s expensive, not sure if it would be effective?

You are a looter. And you obviously must be a member of the “lowest income quintile” to call this a “reasonable price”. Please do real research on global warming/climate change… meaning talk to scientists not bribed **I mean funded** by our government.

Posted by jaz | Report as abusive

$175 Don’t make me laugh.
Everything we purchase would increase in price.
And $40 credit to do what. Buy toilet paper?
CAP and TRADE is ENRON forced onto everyone.
CAP and TRADE is not about emissions it’s all about
the government creating a hugh slush fund for world government expansion.
CAP and TRADE places the entire U.S. economy on the shoulders of speculation, manipulation within the Chicago Climate Exchange(CCX)
CAp and TRADE is the most damaging plan for America changing our freedom in a very bad way.

Posted by Les Horn | Report as abusive
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