Obama's Cap-and-Trade to Worsen Poverty

NCPA June 2, 2014

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, explains why the EPA's new cap-and-trade regulations will make the poor a lot poorer.

Americans in the bottom fifth of the income distribution spend almost one quarter of their income on energy. Those in the top fifth, on the other hand, spend just 4 percent of their income on energy costs. The president's cap-and-trade proposal will raise the cost of energy, particularly electricity, thus hitting the poor the hardest.

The cap-and-trade program requires power plant emissions to fall by a certain rate, but it does not require each plant to reduce its emissions by the same rate. The proposal is said to cut emissions from utilities by 25 percent. Because these cuts in carbon emissions will raise the cost of electricity, they will also slow economic growth.

While everyone would like cleaner air, says Furchtgott-Roth, they would also like to be employed, and employment is generated by industrial activity. Regulation should strike a balance between the economy and the environment:

• Currently, air quality is improving, and greenhouse gas emissions from power plants have declined 16 percent between 2005 and 2012.
• To meet the EPA's new standards, states would have to cut power plant emissions, reduce consumer demand for energy or invest in renewables, which are expensive. All of these options create economic costs in the form of fewer jobs and fewer factories.
• In 2012, coal-fired electricity generations accounted for 37 percent of total U.S. electricity generation, according to the Energy Information Administration. New coal plants would have to install controls to meet the EPA standards that would cost consumers billions of dollars each year.
• The Congressional Budget Office (2013) has reported that emissions reduction programs in general would cause job losses in coal mining, oil and gas extraction, gas utilities and petroleum refining. Wages would also drop.
• A December 2013 report from the CBO concluded that cap-and-trade would put emission-intensive American firms at a disadvantage compared to foreign competitors.

Cap-and-trade was unable to pass through Congress, writes Furchtgott-Roth, and the president should not impose such a policy through regulation.

Source: Diana Furchtgott-Roth, "Obama's Plan to Make the Poor Even Poorer," Real Clear Markets, May 27, 2014.