Friday, April 3, 2009 | 2 a.m.
Beyond the Sun
As Congress begins to turn its attention to climate change legislation, the debate has shifted from a conversation about saving the planet to one about protecting your wallet.
Opponents have mounted a fierce campaign based on a startling factoid: Cap-and-trade legislation could cost the average U.S. household $3,100 a year.
Nevada Republican Sen. John Ensign used this argument during a speech this week on the Senate floor.
It’s effective. No one wants to pay that much in higher utility bills and higher prices for ordinary items because of rising energy costs.
Ensign argues that if Congress imposes cap-and-trade legislation, President Barack Obama will effectively break his promise of no new taxes on families making $250,000 a year or less.
There’s just one problem: It’s not exactly true.
In fact, a growing body of literature is being developed around how climate change legislation would affect your pocketbook. Here is a snapshot of the findings:
Yes, electricity costs will rise if Congress passes climate change legislation. The nation will have to pay to shift the economy from one based on fossil fuels to one based on green energy sources that are still emerging as industries.
Economists, though, say the costs per household would be far lower than Ensign claims. In fact, the costs would drop even further after factoring in expected government rebates or subsidies.
Those lower estimates do not account for the high price of doing nothing, which would include higher energy costs as well as the migration, security and other costs associated with a warming planet.
One Massachusetts Institute of Technology economist essentially scolded Republicans this week for misusing his report to arrive at the $3,100 figure.
John Reilly, associate director of research at the university’s Joint Program on Global Change and a co-author of the study, said the actual cost per household would be about one-tenth, or $340 annually. He assumes revenue raised through a cap-and-trade system would be shared with consumers.
Here’s how cap-and-trade works: The government would essentially set a limit on carbon emissions and require companies that pollute beyond that level to obtain an allowance. If the government decides to charge companies that receive those allowances, estimates are that the cap-and-trade system would generate as much as $640 billion annually in revenue. Obama and leading Democrats have indicated that some of that money should be used to help consumers pay their bills.
But even before any government rebate, the nonpartisan Congressional Budget Office testified last month that the annual cost for middle-income households would be $1,600 a year. The CBO was clear that its estimate did not count additional economic benefits consumers could see from climate change legislation.
Supporters of climate change legislation insist any consumer costs would be offset by government rebates or subsidies, especially for low-income households. The draft cap-and-trade bill introduced this week by House Democrats includes a section titled “Consumer Assistance” — a placeholder for an offset plan to come.
“I know people are in an uproar: It’s going to cost so much, it’s going to cost so much,” said Democratic Rep. Shelley Berkley, who has long pushed for green energy and now sits on the Ways and Means Committee, which is writing climate change tax policy.
“We’re working on that right now. They’re going to experience an increase in the cost of energy. There will be subsidies available.”
Berkley becomes furious, though, when the debate turns to consumer costs. She points to the hidden costs of business as usual — asthma-related air pollution, national security threats and a nuclear waste dump planned for Yucca Mountain.
“Just a few months ago we were paying $4 a gallon for gas,” Berkley said. “How long do we have to depend on oil and other fossil fuels? There has got to be a long-term and serious commitment to planning, to creating an energy policy for this nation’s future.”
Climate change legislation is poised to become a signature issue of the Obama administration and the Democratic Congress.
Obama has pledged to reduce greenhouse gases and increase renewable energy production as part of a massive shift in national energy policy that has been debated since the Carter administration. President Ronald Reagan famously removed solar panels his predecessor installed at the White House.
Hopes are high that Congress will pass legislation in time for a December international conference in Copenhagen, Denmark, where participants are expected to draft what is billed as the next Kyoto accord — a global commitment to reduce emissions causing climate change.
But revamping national energy policy will not come without a fight, especially from the traditional industries that have powered the nation for decades. Lawmakers from both major parties, especially those from states where coal, oil and gas companies are concentrated, have raised red flags.
Opponents have targeted pocketbook costs as a linchpin of their criticism.
A full-page advertisement by the oil and gas industry in Thursday’s Washington Post was headlined “New Energy Taxes.” It continued, “With our economy in crisis, this is no time to burden Americans with massive new energy costs.”
Ensign, as chairman of the Republican Policy Committee in the Senate, convened a hearing Monday to investigate the “National Energy Tax in Obama’s Budget.”
Ensign cited the $3,100 figure — what he calls “the national sales tax on energy” — during a Senate floor speech Wednesday.
He reminded that Obama promised not to raise taxes on individuals making up to $200,000 and families making up to $250,000, and pledged to hold the president accountable.
“Families were promised no tax increases and they don’t care whether those tax increases come directly or indirectly,” Ensign said. “I repeat, ‘Not one single dime,’ ” Ensign said, reiterating the president’s pledge.
Yet even an economist invited to testify at Ensign’s hearing said the $3,100 struck her as high.
Aparna Mathur, an economist at the American Enterprise Institute, put the average annual household price closer to $600 (in 2003 dollars). Her figures are on par with past estimates from the Congressional Budget Office.
Mathur was more skeptical, however, that consumers would be guaranteed some sort of offset to limit the hit to the pocketbook. Already, potential revenue raised from selling pollution permits in the proposed cap-and-trade system are being eyed for other uses — namely to fund health care.
“Even if they refund the money, we don’t know how much they will give back,” she said. “There’s already a lot of demand on that money.”
Supporters of climate change legislation predict consumers will save money with a more efficient energy system that does not depend on coal or the vagaries of foreign oil prices, which drive up consumer gas bills and add transportation costs to the price of virtually all goods.
The Union of Concerned Scientists cites studies showing that gross domestic product would fall by less than 1 percent with climate change legislation, while the costs of climate change could account for more than 3 percent of GDP in years to come.
They see the cost issue being raised as a roadblock to legislation — a way to thwart the president’s agenda and protect the energy and manufacturing industries that have been home-state staples but would now face the enormous challenge of operating in a changed environment.
Liz Perera at Union of Concerned Scientists said energy prices will continue to rise in response to growing demand if nothing is done to find new energy sources.
“The reality is, there’s no one to help consumers now,” she said.