Cap-and-trade will take 3.5% off of GDP by 2050

posted at 11:36 am on September 18, 2009 by Ed Morrissey
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If the Senate ever does finish with a health-care overhaul bill, the next item on their agenda looks like an even bigger loser.  The Congressional Budget Office, whose analyses exposed ObamaCare as a deficit-busting boondoggle, has now reviewed the cap-and-trade bill passed by the House over two months ago.  The analysis confirms that cap-and-trade will seriously hamper the American economy and create joblessness by the millions over the next 40 years:

The climate change bill approved by the U.S. House of Representatives would reduce the gross domestic product of the United States by as much as 3.5 percent in 2050, the Congressional Budget Office estimates.

The Democratic-controlled House passed landmark legislation in June aimed at slashing industrial pollution that is blamed for global warming.

“Reducing the risk of climate change would come at some cost to the economy,” the CBO said in a reported posted on its website on Thursday.

The report concludes that if cap and trade provisions of the bill are implemented, the measure would reduce the gross domestic product by between 1 percent and 3.5 percent below what it otherwise would have been in 2050.

Read the full report here.  What would the cap-and-trade bill mean for Americans?  Unnecessary misery and stagnation:

The increases in the price of energy caused by the program would reduce workers’ real wages. Total employment would be lower in the long run to the extent that some workers chose to work fewer hours or not at all—but for nearly all workers, the choice in the long run would probably be to remain in the workforce and accept the prevailing wage. …

On the other hand, CBO’s estimate of the loss of purchasing power does not capture all of the ways in which the cap-and-trade program could impose costs on households. There would be transition costs of lost earnings by workers who would become temporarily unemployed or underemployed during the adjustment to higher prices for energy from fossil fuels. There would also be indirect effects on household consumption relative to what would happen in the absence of the cap-and-trade program. The premature obsolescence of existing long-lived capital, such as coal-fired power plants that would no longer generate as much electricity, would reduce household wealth a little (through shareholders’ losses) and in turn reduce consumption. Both lower household wealth and higher costs of producing energy-intensive capital goods would reduce domestic saving and investment, leading to slightly lower economic growth and household consumption. Finally, some interactions of the cap-and-trade program with existing taxes could tend to add to economic costs. For example, the increase in prices for fossil fuel energy and energy-intensive goods and services would tend to aggravate distortions in the labor market caused by existing taxes on earnings.

The loss in purchasing power would rise over time as the cap became more stringent and larger amounts of resources were dedicated to cutting emissions—for example, by generating electricity from natural gas rather than coal or by improving energy efficiency. As a share of GDP, the aggregate loss of purchasing power would be 0.1 percent in 2012 and 0.8 percent in 2050, CBO estimates, and would average 0.4 percent over the entire 2012–2050 period. Measured at the projected 2010 level of income, the average per-household loss in purchasing power would be $90 in 2012 and $925 in 2050 and would average about $455 per U.S. household per year over the 2012–2050 period.

Meanwhile, businesses would have sharp increases in compliance costs, but they won’t be the ultimate payer of those costs.  The CBO estimates that households would bear the costs of 87% of the compliance costs through higher prices:

CBO estimated price increases for categories of goods and services using a model of the U.S. economy that relates final prices of goods to the costs of production inputs. Households and governments would bear those costs through their consumption of goods and services. Households account for the bulk of total spending, and they would bear an estimated 87 percent of the compliance costs.

Those compliance costs won’t be evenly distributed across all income levels, either.  The CBO shows in this chart that compliance costs will eat up purchasing power most at the lowest income levels by 2020, but that “allocations” (ie, welfare and subsidies) within the bill makes them the winner.  The big loser?  The middle class:

And by 2050, that effect only gets more pronounced:

In other words, we’re about to impose a policy that curtails growth, creates serious employment problems, and hammers the middle class on wages and spending power.  For what?  To appease the environmental lobby over a hypothesis that the last ten years has all but disproven.

Do Americans want to pay this kind of price to surrender to climate-change hysteria?

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