Has Obama Administration Covered Up Cost of Cap-and-Trade?

A Freedom of Information Act request by the Competitive Enterprise Institute (CEI) of Treasury Department documents related to proposals involving cap-and-trade have revealed that the department believes it will cost consumers hundreds of billions of dollars.  This is in sharp contrast to the cost estimates made by the Environmental Protection Agency (EPA) and the Congressional Budget Office (CBO) earlier this year when the legislation was being voted on by the House of Representatives.

The cap-and-trade legislation is now mired in the Senate and has been pushed aside for the moment by the national health care debate.  But the fact that the Treasury Department acknowledges that the cap-and-trade bill will be much more costly than the government has publicly acknowledged is disconcerting.  In fact, the government used these low cost estimates by the EPA and CBO to refute the significantly greater cost studies conducted by various think tanks and other organizations fighting passage of the bill.

The EPA suggested the cost to households for the cap-and-trade legislation would range between $98 and $140 a year for each family, or about $10-$15 billion total.  The CBO cost estimate is slighly higher with an average cost of $175 per family ($18 billion) with low income families getting a benefit of $40 while upper income families would be hit with a $245 annual cost.  These low cost estimates were supported by a study prepared by the Energy Department's Energy Information Administration. 

The EPA study was based on consumption rather than income, which reduces the financial impact since families respond to income cuts by saving less.  It also used discounting to reach its low cost estimate.  The EPA used a 5% discount rate, higher than any other global warming study, thereby lowering the cost estimate.  It also assumed all the carbon allowances sold under the plan would be rebated, but that is not the case with the legislation.  Plus the analysis assumed a doubling of nuclear power's contribution.  When did you hear the administration or Congress talk about stimulating the construction of nuclear power plants?  And how long before these plants could even begin to impact the cost?

The CBO study ignored the cost to the economy in the loss of GDP from higher energy costs.  The Heritage Foundation estimates that the hit to the nation's GDP in 2020 would be $161 billion (2009 dollars), which for a family of four is a cost of $1,870.

A memo from the Treasury Department's Office of Environment and Energy suggests that the cap-and-trade will generate federal receipts of $100-$200 billion annually.  Some of the other cost estimates contained in the ten pages of documents released under the FOIA request were redacted.  The CEI is suing for release of that data.

This disclosure is similar to the current health care debate.  Staffers and lobbists draft the legislation and the politicians talk about it without often having read what was written.  Thus, they often make statements about the legislation that are flat out wrong.  The rush to pass the stimulus bill earlier this year produced a rash of disclosures after the fact that were different than reported or not even disclosed.  Even the cash-for-clunkers program didn't clearly disclose that receipients would be taxed on the payments.  Surprise! Surprise! Surprise!

Surprise is not the appropriate way to reorganize the critically important energy sector of the U.S. economy.