175: A Lucky Number for Waxman-Markey?

EKO ECO Guest Blogger on July 29, 2009 1 Comment

By Caroline Ott, Intern at Ecosystem Marketplace, Carbon Market and Water Programs

The Waxman-Markey bill probably isn't topping your summer reading list. In fact, you may be tempted to forgo the 1000-page manifesto and stick to a few numbers instead. According to the bill, greenhouse gas emissions would fall 17% over 2005 levels by 2020. Also by this date, 20% of electricity would be generated from renewable energy sources. Easy enough.

But while Representatives Waxman and Markey explicitly named these targets, analysts of the bill have crafted much more startling and at times conflicting figures. For example, a recent study from the University of Massachusetts found that the bill would create 1.7 million new jobs. On the other hand, The Heritage Foundation claims that up to 1.9 million jobs would be destroyed.

These opposing numbers deliver one message: cost projections rest on shaky variables and assumptions. Nevertheless, the numbers tend to stick, and one such figure could make or break the Waxman-Markey legislation: the cost of cap-and-trade to taxpayers.

A report from The Congressional Budget Office (CBO) recently estimated that the cap-and-trade scheme proposed by Waxman-Markey would cost the average American household $175 per year. The poorest quintile would actually receive $40 in benefits each year, while the richest would be docked $245. As Markey put it, a green revolution would cost the average household a postage stamp a day.

So how reliable is this latest projection? According to the Pew Center's Eileen Claussen, cost projections rest on a series of assumptions including the underlying policy, energy prices, and the pace of innovation. Over the past decade, countless studies have taken their best shot by designing their very own clean-energy worlds - estimates have ranged from $100 to $3000 per household per year.

Political opponents such as Rep. Boehner (R-OH) and Senator Jim Inhofe (R-OK) have seized these upper estimates as data supporting their position. However, the $3000 figure, originally quoted in a 2007 MIT study, does not include revenues generated by allowance auctions, thereby overestimating the total cost of cap-and-trade by a factor of ten. Estimates on the order of $100 - $200 are the most credible to date for the sole reason that they are based on current legislation and not some imaginary blueprint for a green economy.

As Waxman-Markey meets the Senate, it is time to take a closer look at the math surrounding cap-and-trade. We may not be able to distinguish fact from fiction, but the numbers should at least be based on a true story.