On second thought, GOP cap-and-trade cost estimates on the money

posted at 12:14 pm on April 22, 2009 by Ed Morrissey

Republican opponents to Barack Obama’s cap-and-trade policy claimed that the costs passed along to the energy consumer would eventually amount to about $3100 a year, calling this a tax by other means.  Proponents scoffed at the suggestion, claiming that the actual cost would be less than a tenth of that amount.  They cited John Reilly, an MIT professor who claimed that the GOP lied about the study he conducted in order to concoct that number — and organizations from newspapers to Think Progress to MS-NBC and even the Wall Street Journal used his statement to call Republicans liars for the last several weeks.

They may have to eat those words.  Professor Reilly has rechecked his figures, and now he says that not only were the Republicans right after all, they actually underestimated the costs to the consumer.  John McCormack scores the exclusive:

Many congressional Republicans, including members of the GOP leadership, have claimed that the plan to limit carbon emissions through cap and trade would cost the average household more than $3,100 per year. According to an MIT study, between 2015 and 2050 cap and trade would annually raise an average of $366 billion in revenues (divided by 117 million households equals $3,128 per household, the Republicans reckon).

But on March 24, after interviewing one of the MIT professors who conducted the study on which the GOP relied to produce its estimate, the St. Petersburg Times fact-check unit, Politifact, declared the GOP figure of $3,100 per household was a “Pants on Fire” falsehood. The GOP claim is “just wrong,” MIT professor John Reilly told Politifact. “It’s wrong in so many ways it’s hard to begin.” …

During a lengthy email exchange last week with THE WEEKLY STANDARD, MIT professor John Reilly admitted that his original estimate of cap and trade’s cost was inaccurate. The annual cost would be “$800 per household”, he wrote. “I made a boneheaded mistake in an excel spread sheet. I have sent a new letter to Republicans correcting my error (and to others).”

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].”

At issue is what happens to all of the cap-and-trade funds that get collected by the government in the Obama plan.  In order to believe that the Obama-predicted revenues pulled out of the energy industry won’t impact the consumer, either one has to believe that energy producers won’t pass along those costs in price hikes (which is ridiculous), or that the Obama administration envisions a profit-sharing plan in which the money all goes back to the consumers.  The latter is equally ridiculous, and demonstrably so.  In the first place, Obama has already hiked federal spending $400 billion in the next fiscal year, and even his own OMB predicts trillion-dollar deficits for the next decade after that.  Massive rebates might sound great to Republicans, but Democrats will never, ever agree to them.  In any case, with these deficits, the money for rebates technically doesn’t exist.

Besides, the money has already been earmarked.  Obama himself said he would use the money for massive government expenditures on renewables research.  Other Democrats counted on the money to fund health-care reform.  No one in the administration or Congress ever envisioned giving the money back to the consumers, directly or even indirectly.

Once the government gets this money from energy production, they’re going to keep it.  That means that Reilly’s final figure of $3900 per household is the correct number to use.  It validates what the Republicans have said all along — that Obama’s cap-and-trade policy will be a disastrous burden on American families.  Maybe all of the scoffers should read what Reilly has to say now, but that’s not nearly as much fun as calling Republican liars.


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