01 Sep 2003 Tinkering With Energy is Playing With Fire: Cap and Trade Schemes are Regressive, Placing Burdens on Low-Income Communities

Hopes for a swift and lasting economic recovery could be dashed if Congress approves a misbegotten scheme that two independent government agencies have concluded will send energy prices through the roof.

The “Climate Stewardship Act of 2003” (S. 139), introduced by Senator Joe Lieberman (D-CT) and co-sponsored by Senator John McCain (R-AZ), would address the supposed problem of “global warming” by suppressing America’s use of energy. Similar to the Kyoto Protocol, which the United States has rejected, the Lieberman/McCain bill would require four key sectors of the U.S. economy – commercial, industrial, transportation and electric power – to reduce their emissions of carbon dioxide and other greenhouse gases to 2000 levels by 2010 and to 1990 levels by 2016.1

This would be accomplished through a so-called “cap-and-trade” program. Under this scheme, the government sets a mandatory cap (or limit) on total greenhouse gas emissions and requires suppliers and users of fossil fuels – which are the main source of carbon emissions – to hold rights for each metric ton of carbon emissions they produced. These rights (or allowances) are then bought or sold by the manufacturers, power plants and other entities covered in the program. In this way, energy use – measured in emissions – is kept within the government-mandated cap.2

Sound complicated? It is and, even worse, by suppressing the amount of energy that can be produced, the Lieberman/McCain plan will inevitably lead to energy scarcity and, thus, to higher energy prices. And the biggest losers in this game will be those least able to afford spending more of their hard-earned cash on such essentials of life as electricity and transportation.

“The price increases resulting from a carbon cap would be regressive – that is, they would place a relatively greater burden on lower income households than on higher income ones,” concludes a report released in July by the nonpartisan Congressional Budget Office (CBO).3 “A cap-and-trade program for carbon emissions could impose significant costs on the economy in the form of welfare losses,” it added, with the burden “borne by people in their role as shareholders, consumers and workers.”4 According to the report, “Shifting the Cost Burden of a Cap-and-Trade Program,” a 15-percent cut in carbon emissions could “cost the average household in the lowest one-fifth of the income distribution about $560 a year, or 3.3 percent of its average income.”5

The CBO report’s findings were echoed by an analysis of the Lieberman/McCain bill released in June by the Energy Information Administration (EIA). It, too, predicted skyrocketing energy prices resulting from the cap-and-trade scheme. According to the federal EIA, the average household’s energy bill, including the fuel cost of personal transportation, would rise by $444 per year in 2025, or 13 percent more than what the household would pay without the Lieberman/McCain energy-rationing program. Over the same time, the EIA estimates that gasoline prices would rise by 40 cents per gallon, and the cost of electricity would surge by 46 percent.6

But even the best economic analysis cannot capture the real-life burdens such a program would impose on low-income Americans. Tom Mullen, president of Cleveland Catholic Charities, told the Senate Environment and Public Works Committee in June 2002 that dramatic increases in energy prices resulting from the Lieberman/McCain bill and similar legislation would have severe impacts on low-income families, especially poor children. “The group that I have real concerns for and will be hurt similarly by [high electricity and energy prices] is children,” he said. “These children will suffer further loss of basic needs as their moms are forced to make choices of whether to pay the rent or live in a shelter; pay the heating bill or see their child freeze; buy food or risk the availability of a hunger center. These are not choices any senior citizen, child, or for that matter, person in America should make.”7

Fossil fuels – coal, oil and natural gas – account for 70 percent of America’s electricity and 84 percent of all the nation’s energy needs.8 Any congressional action that would jeopardize Americans’ access to affordable energy will have devastating consequences for society as a whole, and for the poor in particular.

Those who would tinker with the supply of energy had better take a long, hard look at the economic dislocation caused by the recent blackout in the Northeast and Midwest. Folks from New York City to the shores of Lake Michigan got a taste of life is like when the supply of energy is disrupted. Given the choice, they won’t come back for seconds.

Bonner Cohen is a senior fellow of The National Center for Public Policy Research, a Washington, D.C. think tank. Comments may be sent to [email protected].

Footnotes:

1 “Analysis of S. 139, the Climate Stewardship Act of 2003,” Energy Information Administration, U.S. Department of Energy, Washington, D.C, June 2003, p. 1, available at http://www.eia.doe.gov/oiaf/servicerpt/ml/pdf/sroiaf(2003)02.pdf on August 25, 2003.

2 “Shifting the Cost Burden of a Carbon Cap and Trade Program,” Congressional Budget Office, U.S. Congress, Washington, D.C., July 2003, p. 1.

3 Ibid., p. 2.

4 Ibid.

5 Ibid., p. 3.

6 “Analysis of S. 139, the Climate Stewardship Act of 2003,” p. 2.

7 Testimony of Tom Mullen, president of Cleveland Catholic Charities, before the U.S. Senate Environment and Public Works Committee, Washington, D.C., June 12, 2002.

8 Marlo Lewis, “Shame on McCain,” Tech Central Station, January 8, 2003, available at http://techcentralstation.com/1051/envirowrapper.jsp?PID=1051-450&CID=1051-010803A as of August 25, 2003.