Andrew Chamberlain is the Chief Economist and Principal of Chamberlain Economics, L.L.C. His field of expertise is public finance economics and he has written extensively on tax and budget policy. His areas of study have included estimates of tax and budget incidence, methods for estimating tax burdens, and estimating tax burdens households would face from a cap and trade system.
Enter the hotly contested and widely controversial “cap and trade” bill which narrowly passed the House on June 26, 2009 by a 219-212 margin.
Bloomberg Business gives a good summary for lay people on the nature of a “cap and trade” system:
The bill sets a cap on emissions of greenhouse gases. By 2020, emissions must be reduced 17% over 2005 levels. By 2050, emissions must be reduced 80% or more. Staying under these caps is done with a system of permits or allowances. Companies must have an allowance for every ton of greenhouse gas they emit. They are allowed to buy and sell those allowances, but gradually the total number of allowances will be reduced, thus reducing overall emissions.
Now it’s the Senate’s turn, with Kerry and Lieberman setting the stage for the passage of their version of the bill. They and other senators met yesterday with Mr. Obama over discussions of the bill, with Mr. Obama apparently insistent it must include a price for carbon emissions, which he blames for global warming. The Republicans in the meeting lambasted the bill, claiming it is really a “national energy tax.”
“If we want a clean energy bill, take a national energy tax off the table in the middle of a recession while we focus on the oil spill and focus on what we agree on,” said Sen. Lamar Alexander, R-Tenn.
The Institute for Energy Research commissioned a report from Mr. Chamberlain on the impact of such a law on American businesses and households and today that report was released. It is titled PAYING FOR THE “AMERICAN POWER ACT”: AN ECONOMIC AND DISTRIBUTIONAL ANALYSIS OF THE KERRY-LIEBERMAN CAP-AND-TRADE BILL. Key points of the report are:
- The American Power Act would reduce U.S. employment by roughly 522,000 jobs in 2015, rising to over 5.1 million jobs by 2050.
- Households would face a gross annual burden of $125.9 billion per year or $1,042 per household, with costs disproportionately borne by low-income households.
- On a net basis, the top income quintile will benefit financially, redistributing to these households roughly $12.3 billion per year from the bottom 80 percent of earners.
- Households over age 75 bear the largest burden at 2.3 percent of income, followed by households aged 65-74 and under age 25 at 2.1 percent. By contrast, the nation’s highest-earning households between age 45 and 54 years would bear the smallest percentage burden of just 1.5 percent.
- Contrary to the legislation’s stated goal of reducing price volatility by excluding petroleum refiners from quarterly auctions, the Kerry-Lieberman bill is likely to significantly increase allowance price volatility from quarter to quarter, compared to an ordinary auction in which all covered industries bid for allowances.
Please check out page 46 for a table of the economic impact of Kerry-Lieberman on employment and household earnings for various U.S. industries, year 2020. I guarantee you, it isn’t pretty. Mr. Chamberlain’s summary on page 47 states the legislation falls short of its goals because its aim is to reduce greenhouse-gas emissions by sharing the burden across US businesses and households equitably without burdening the US economy. The above bulleted items clearly show that isn’t possible in its present form. Mr. Chamberlain goes on to say:
Aside from the distributional impact of the bill, Kerry-Lieberman suffers from serious flaws in its policy design. As debate over climate policy continues in the U.S. Senate, lawmakers should reflect on these flawed aspects of the Kerry-Lieberman bill and consider ways of addressing the problems identified in this study.
Please take a close look at the Institute for Energy Research. It’s an excellent site for learning about energy usage in the US as well as conducting research and analysis of the global energy markets.