MIT scientist: Cap-and-trade could cost $3900 per household

Posted on April 22, 2009



How fitting this story should come out on Earth Day(there are no coincidences). A recent MIT study led Republicans over the last few months to claim that the cap-and-trade environmental proposal would cost each American household roughly $3,100. The argument seemed to lose steam when the author of the study, MIT professor John Reilly, claimed the study was being misrepresented and that cap-and-trade would only cost each household $215. The news was rapidly spread across the media, and pundits and Democrat politicians were painting the Republicans as liars for using “fuzzy math” to attack their precious cap-and-trade.

(For those who are unclear on what exactly cap-and-trade means: basically the government sets a limit on emissions for business – the cap. Businesses that have emissions over the limit must buy emissions credits from businesses that don’t pollute as much – the trade.)

The problem is, it seems the professor now admits to making a spreadsheet error that puts the new estimate at about $800/year. That alone is a significant increase, but read what else the article says (heads up from Hot Air) :

While $800 is significantly more than Reilly’s original estimate of $215 (not to mention more than Obama’s middle-class tax cut), it turns out that Reilly is still low-balling the cost of cap and trade by using some fuzzy logic. In reality, cap and trade could cost the average household more than $3,900 per year.

The $800 paid annually per household is merely the “cost to the economy [that] involves all those actions people have to take to reduce their use of fossil fuels or find ways to use them without releasing [Green House Gases],” Reilly wrote. “So that might involve spending money on insulating your home, or buying a more expensive hybrid vehicle to drive, or electric utilities substituting gas (or wind, nuclear, or solar) instead of coal in power generation, or industry investing in more efficient motors or production processes, etc. with all of these things ending up reflected in the costs of good and services in the economy.”

In other words, Reilly estimates that “the amount of tax collected” through companies would equal $3,128 per household–and “Those costs do get passed to consumers and income earners
in one way or another”–but those costs have “nothing to do with the real cost” to the economy. Reilly assumes that the $3,128 will be “returned” to each household. Without that assumption, Reilly wrote, “the cost would then be the Republican estimate [$3,128] plus the cost I estimate [$800].”

In Reilly’s view, the $3,128 taken through taxes will be “returned” to each household whether or not the government cuts a $3,128 rebate check to each household.

I don’t know about you, but I’m not so certain you can just discount the $3,128 passed on to consumers to cover a tax on business because the tax money will theoretically be returned to the taxpayers in the form of government services. If the last few years are any indication, the money will more likely be spent helping certain demographics and special interests. And on a more fundamental, it ought to be up to the American people how they spend their money, especially in these tight economic times.

The bottom line is, now that the debunking has been debunked, it’s becoming ever more clear that the cap-and-trade proposal is going to be a burden on business and the American taxpayer. When it comes to the environment, I’m a conservationist who believes we ought to be good stewards of this planet. But we cannot sacrifice our economy to assuage the eco-guilt of some, especially as India and China will refuse to follow our lead and further overtake our manufacturing capability.

And in a broader sense, making this proposal flies in the face of claiming to care about the economy and small business. An additional $4,000 burden on a household will be a back-breaker for many, and while it might be a good source of revenue for the government, it will be an albatross around the neck of industry that, frankly, we don’t need right now. Cap-and-trade isn’t the solution to the chimeric issue of global warming (which itself isn’t as cut and dried as it seems), but it will end up being a major economic headache.

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