Media advance discredited GOP calculation of Obama cap-and-trade proposal cost
Research ››› ››› CHRISTINE SCHWEN
Several media figures and outlets have uncritically repeated or failed to challenge the discredited GOP talking point that President Obama's cap-and-trade proposal would cost the average U.S. household more than $3,000 per year.
Several media figures and outlets, including Fox News anchors Eric Shawn and Alisyn Camerota, Roll Call, and CNN congressional producer Ted Barrett have uncritically repeated or failed to challenge the Republican claim that President Obama's cap-and-trade proposal would cost the average U.S. household more than $3,000 per year. The claim was advanced by the House Republican Conference in a March 23 "Talking Points" press release, and the Republicans reportedly purported to back up the claim by pointing to a 2007 study by the Massachusetts Institute of Technology (MIT). But MIT professor John Reilly, one of the authors of the study, has disputed the GOP's calculation, stating that his study "has been misrepresented" and that the Republicans' claim of an average household cost of $3,128 is "nearly 10 times the correct estimate" based on his study's cap-and-trade model.
In a March 30 post analyzing the House Republican Conference's claim, PolitiFact.com reported: "To back up the claim, their staff pointed us to an M.I.T. report that says a similar a cap-and-trade proposal (the administration has not yet detailed their own version) would raise $366 billion per year. If you divide that by the 117 million households in the United States, you find it would cost each household $3,128, they said." On April 1, Reilly wrote a letter to House Republican Leader John Boehner (OH) (which Think Progress posted on its website) stating that the Republicans' methodology was flawed and that the study "has been misrepresented." Reilly wrote that this talking point "claims our report estimates an average cost per family of a carbon cap and trade program that would meet targets now being discussed in Congress to be over $3,000, but that is nearly 10 times the correct estimate which is approximately $340." He explained the reason for the difference between the two figures:
Why is this amount so different? As far as I can tell the $3,000+ is based on the potential auction revenue the government could collect by auctioning the allowances over the period through 2050 where a simple average over all years from 2015 to 2050 was computed. The tax revenue collected through such an auction, the costs of reducing greenhouse gas emissions, and the average impact on a household are very different concepts. Thus, there are several things wrong with this calculation. First, the auction revenue is determined by the CO2 price and how many allowances are issued -- allowances tell us how many tons of CO2 (or more broadly greenhouse gases) will continue to be emitted. The cost of reducing emissions depends on how much emissions are reduced not on how much continues to be emitted. Second, the CO2 price reflects the cost of the last ton of emissions reduced but there are many options that cost much less than avoiding the last ton and so using the CO2 price multiplied by the number of tons (either reduced or emitted) is also wrong. Third, the average cost to a household depends on how allowances or the allowance revenues are distributed. Fourth, the costs are borne over time and it is wrong to produce a simple average of such costs as that does not take account of the time value of money.
We assumed in the analysis we did that the revenue is returned to households. From data in the report we can calculate the economic cost in each year (percentage loss times the base welfare level in each year), and divide this by the US population, and then multiply this amount by four to estimate the cost for a representative family of four. We further apply an economic discount rate of 4% to get the Net Present Value (NPV) cost in each year in the future. Doing this we find that the NPV cost per family of four starts at about $75 in 2015, rises to nearly $510 by 2025, and then falls to $205 by 2050. We can calculate the average annual NPV cost per family by summing over all years and dividing by the number of years, and this shows the average annual net present value cost to be about $340 -- only a part of which would be actual energy bill increases. This $340 includes the direct effects of higher energy prices, the cost of measures to reduce energy use such as adding insulation to homes, the higher price of goods that are produced using energy, and impacts on wages and returns on capital. The cost per household will vary from our hypothetical average family of four depending on the household's circumstances. Those households with large heating and cooling bills because of the climate in which they live or who drive more than average will face higher costs. Those with smaller homes who live in benign climates will have lower costs. The higher energy prices encourage reductions in energy use by increasing the payback on improvements in energy efficiency, and through such investments households can avoid paying more for energy. Jobs and wages in fossil fuel industries are likely to decline but job opportunities will increase in industries that produce alternative energy sources or that provide ways to save energy.
Reilly further wrote that "[m]any of the proposals currently being considered by Congress and as proposed by the Administration have been designed to offset the energy cost impacts on middle and lower income households and so it is simplistic and misleading to only look at the impact on energy prices of these proposals as a measure of their impact on the average household." According to Obama's fiscal year 2010 budget proposal, from 2010 to 2019, $120 billion of the revenue collected from his cap-and-trade proposal would be "[d]edicated to climate policy (clean energy technologies)," while $525.7 billion would be "[d]edicated to Making Work Pay," indefinitely extending that refundable tax credit for workers and their families that was first implemented in the American Recovery and Reinvestment Act. Further, as detailed in footnote 5 of the budget proposal's table on Mandatory and Receipt Proposals, "[a]ll additional net proceeds will be used to further compensate the public."
Examples of media figures and outlets claiming that Obama's proposal would cost the average American household more than $3,000 per year include:
- On the April 5 edition of Fox News' America's News HQ, Shawn said that "this cap-and-trade, or as the Republicans call it, cap-and-tax -- could add $3,000 a year on our electric bills." Shawn later added, "that's about -- $290 or so a month. I mean, imagine the American public, everyone watching right now -- all of us -- getting an extra 300 bucks or so a month tacked on to our utility bills."
- On the April 2 edition of Fox News' America's Newsroom, Camerota asserted that Obama's cap-and-trade proposal "would be $3,100 per U.S. household."
Additionally, the following media figures and outlets have uncritically quoted Republicans advancing the claim without noting that it has been disputed by Reilly:
- In an April 6 Roll Call article, reporter Jay Heflin uncritically reported Sen. John Cornyn's (R-TX) claim of Obama's proposal: "[T]he effort equates to a 'light switch tax' of up to $3,128 each year for families."
- In an April 1 post to the CNN Political Ticker blog, Barrett uncritically repeated the claim, writing: "Senate Republican Leader Mitch McConnell praised the Senate for having 'slammed the door on using the fast-track process to jam through a new national energy tax' that Republicans say will cost families $3000 a year in higher energy costs."
From the April 5 edition of Fox News' America's News HQ:
SHAWN: Well, right before Congress left for the Easter break, lawmakers in the Senate handed the president a possible setback on his environmental plans. The president's budget has a carbon emissions control measure that's expected to sharply hike the cost of gasoline and electricity. The Democratic leadership wanted the power to pass this thing on to a simple majority vote, but more than two dozen Democratic senators have bucked the administration; they joined Republicans in blocking that move.
Let's now turn to this issue -- it's called cap-and-trade. The House Republican Congressman Tom Price is from Georgia; he's a member of the House Financial Services committee and the Republican Study Committee. Congressman Price, many say it's a noble effort, but it could -- this cap-and-trade, or as the Republicans call it, cap-and-tax -- could add $3,000 a year on our electric bills.
PRICE: Well, you're absolutely right, Eric -- great to be with you this morning. It's actually a national energy tax. Every time that you would turn on your light bulb or a light switch or use any energy whatsoever, the American people would be taxed. And that's why you saw so many Democrat senators cross the aisle last week and say, look, that's not the way that we ought to move forward. The technology ought to be available and the technology ought to be incentivized so that we move toward energy independence, but not through taxing the American people.
SHAWN: Well, we've got to deal with emissions. I mean, we have to deal with it somehow, and this is the major issue. What should, in your view, the administration do if it doesn't seem that this cap-and-tax, or cap-and-trade, will get through?
PRICE: Well, the solution to the energy challenges that we face really are embraced by the American people, and that's an all-of-the-above strategy -- includes conservation, includes utilizing American resources appropriately and safely, and it includes incentivizing the formation of new energy products and new energy sources. It's not taxing the American people and punishing people for using the energy that's the only energy they have available at this time.
SHAWN: Well, how do we control the emissions now? How do we deal with this now, especially when you've got the issue of coal that supplies, what, about 50 percent of our electricity?
PRICE: That's right. Well, in fact, we are decreasing the emissions, and it's technology that is the key to all of this. Technology can decrease the carbon emissions; technology can show us the way toward new energy sources, and make it so that we can continue to have a cleaner environment, which is everybody's goal. To have a cap-and-tax or a national energy tax, where the rest of the world is not even taking part in the process, is just destructive to the American economy.
SHAWN: Well, that's one of the major issues, because you are dealing with China, the emerging markets there; and India, for example; Russia -- some of those nations are much -- are bigger violators than we are when you're dealing with the carbon emissions.
PRICE: That is exactly right. And they are not even taking part in this process. It was like the Kyoto agreement that was -- that was agreed to earlier, where the United States was not a signatory, but other nations that were creating, in fact, more carbon emissions to the atmosphere were not participating in that as well. So the solution to all of this is not taxing and punishing the American people. The solution is the technology and unleashing the technology and the entrepreneurship and vision of the American people, so that we can create the technology and energy sources that will, in fact, be clean.
SHAWN: You know, you keep talking about punishing the American people. The administration would not say it is punishing; they obviously would say they have to have -- we have to have some strategy, some stable strategy on the environment and on these emissions to control it, and this is just one way to do that.
PRICE: Well, sure, they wouldn't say that. But I don't know about that family of four across this nation sitting down at their kitchen table at night trying to figure out how to they're going to pay for their college education or how they're going to pay for putting food on the table or stay in their home, and then the administration comes along and says, well, we're going to tack on another $3,100 a year for your energy. Every time they turn on a light switch or every time they use any energy, there would be a tax. That is destructive to the American economy, and it's destructive to the American family.
SHAWN: Yeah, I know what that's about -- $290 or so a month. I mean, imagine the American public, everyone watching right now -- all of us -- getting an extra 300 bucks or so a month tacked on to our utility bills.
PRICE: Well, and that is just for the national energy tax. Now, the budget that was passed this past week by the Democrats in Congress and a very destructive partisan vote is going to also increase taxes on the American people. So they're heaping tax upon tax upon tax, and they're doing it in such a rapid-fire way that it's tough for anybody to try to figure out how much all of that is going to cost.
What we know is that the American people desire an appropriate energy policy, which calls for conservation, safe use of American resources, and then incentivizing the new technology that will allow us to move through this century and lead the world.
From the April 2 edition of Fox News' America's Newsroom:
BILL HEMMER (co-anchor): Now, the president's energy tax would set limits on carbon emissions, and if you go over a certain point, you pay for it. Some call it cap-and-trade, others call it cap-and-tax. And the one thing that opponents are ticked about this, is that anyone and everyone who uses energy will pay, which brings us now -- yes -- because you asked.
David wants to know -- Orange Beach, Alabama: "Who will be selling the carbon credits? Who will become filthy rich because of it?" Steve Gelsi writes for MarketWatch.com and The Wall Street Journal. Steve, good morning to you. It's Bill Hemmer live on the air. How you doing?
GELSI: I'm pretty good, thanks.
HEMMER: Thank you. Jump on this question here: Who's going to make money off of this?
GELSI: I can't hear you.
HEMMER: Can you hear me now, Steve? Yeah, must be a dead zone on that cell phone. Steve, I'm going to try it one more time, all right? Steve Gelsi, you out there? All right. OK. He's gone. Give us a moment, we'll try and bring him back.
This is a big deal. It's been debated in Congress. The opponents claim that even if you use a light switch, you're going to be paying extra because of it. And now we're wondering whether or not Democrats have the muscle to push it through, whether or not there are enough on the other side that will stop it.
So, when Steve comes back, we will get his view, because you know buried in here somewhere, somebody is making a dollar. Hemmer@foxnews.com by the way is our email address. You know, sometimes it works and sometimes it doesn't, like earlier today when Alisyn was over at the launch pad, our fancy new gizmo there.
ALISYN CAMEROTA: You had to bring that up --
HEMMER: That's the size of --
CAMEROTA: -- didn't you, Bill?
HEMMER: -- a football field -- no, it wasn't your fault. But I was just recommending you go over there and just give it a big kick.
CAMEROTA: I wanted to hear about --
HEMMER: And then it goes.
CAMEROTA: -- that because you know that it would be $3,100 per U.S. household for this new energy tax that you're talking about.
HEMMER: And it's a big deal. Steve Gelsi, you're there now, aren't you?
HEMMER: Hey, who's making money off of cap-and-trade or cap-and-tax?
GELSI: Cap-and-trade. A lot of -- well, a lot of people are going to be making money off of it, but, you know, I was -- I've been looking at this for a while. You know, some of the Wall Street banks might make some money, because this is capitalism at work. Even though it's kind of being labeled cap-and-tax, this is capitalism at work, so a lot of Wall Street trading firms are taking a look at this. I know Morgan Stanley has been very interested in doing this. So, it's such a gray area, it's hard to kind of throw a label on it.
HEMMER: Well, help me understand this now. OK, I'm --
HEMMER: -- I'm flipping the light switch at my house, and I'm paying for that? How does that affect me?
GELSI: Well, it depends. It depends where -- there's a lot of regional differences, there's a lot that needs to be worked out with this thing. You know, I'm not saying they've got it all solved yet, but this is, like, the first -- you know, the legislation that was proposed this week is just, you know, kind of the opening round of what's going to be a long, and difficult, and painful negotiation on this whole -- on this whole process. But --
HEMMER: But you heard -- you just heard Alisyn say that every household in America -- if it's passed -- is going to be paying about three grand per month.
GELSI: Yeah, I hadn't heard that number, but that's the -- you know, where did she get that from? Your electrical bills are going to be going up for sure, but, at the same time, you might have a green-collar job so you can afford to pay a higher electric bill as opposed to being unemployed.
CAMEROTA: You know, he asked where I got that figure. It's Senator Judd Gregg, who, you know, was almost the commerce secretary, and he says it would be $3,100 average household is that -- so you'd pay per year --
HEMMER: Per year, but not per month.
CAMEROTA: -- for this energy tax. Yes, exactly.