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12/9/2009
12/9/2009
Download the full report here (pdf).
The Problem
"Cap and trade" is a plan to limit the emission of "greenhouse gases," particularly carbon dioxide (CO2), through a wide-ranging new government exchange program. Actually a massive tax hike in disguise, this new system would significantly increase costs for Illinois's energy consumers while drastically hurting the state's economy and job market. In exchange, Illinois residents would receive negligible environmental benefits.
According to the Energy Information Administration, 84 percent of the energy consumed by the United States comes from CO2-emitting fossil fuels, such as oil, coal, and natural gas (see Graphic 1).
 Under "cap and trade," policy makers set a limit (a "cap") on user permits for the quantity of CO2 that can be released in a given period. Since the number of permits is limited, they have financial value. If a company takes steps to limit its release of greenhouse gases, they can sell the permits they don't need to other companies that have reached their cap. Over time, the cap can also be lowered to achieve more aggressive emissions-reduction targets.
Early in the spring of 2009, U.S. Representatives Henry Waxman (D-CA) and Edward Markey (D-MA) unveiled a 648-page bill - the American Clean Energy and Security Act of 2009 (ACES) - that calls for restricting the emissions of greenhouse gases in the United States. On June 26, the bill, now 1,427 pages in length, passed the House by a narrow margin. If it is passed by the Senate and signed into law, this climate bill will affect the entire American economy and every single consumer.
President Barack Obama's budget asserts that the Waxman-Markey bill will raise about $650 billion from 2012 to 2019 in new "climate revenue." Any revenues gained by this bill would be offset, though, by significant increases in the cost of energy. Not only would taxpayers have to buy their energy, they would pay a surcharge for the right to use it if it were produced by fossil fuels.
Estimates produced by the Heritage Foundation using 2009 dollar costs show that the national impact of the Waxman-Markey legislation would be large and extremely negative:
- Between 2012 and 2035, cumulative U.S. GDP losses would be $9.4 trillion. This is the same as the entire GDP in 1999.
- Single-year GDP losses would reach $400 billion by 2025 and will ultimately reach $700 billion.
- Net job losses would approach 1.9 million in 2012 and could approach 2.5 million by 2035. Manufacturers would be especially hard hit, losing up to 1.4 million jobs in 2035.
Every state in the nation would be affected, including Illinois, which gets 86 percent of its energy from fossil fuels. According to state-specific research on the impact of the Waxman-Markey bill on Illinois:
- Illinois would lose $13.95 billion in gross state product;
- Personal income would be reduced by $5.3 billion;
- Approximately 50,100 jobs would be destroyed;
- Electricity rates would rise by $435 per household; and
- Gasoline prices would increase by 63 cents per gallon.
Defeating the Waxman-Markey climate change legislation is also important because it doesn't work. According to Chip Knappenberger, the administrator of the World Climate Report, the benefit we would receive from spending $9.4 trillion reduce CO2 emission levels by 83 percent is a decline in global temperatures of 0.09 degrees Fahrenheit, the equivalent of two years of avoided warming. This negligible decline in temperature assumes that all of the assumptions in the Waxman-Markey bill are met and are accurate, and that the scientific models are designed correctly.
Our Solution
The Waxman-Markey climate change legislation and similar plans before the U.S. Senate is poor public policy. By driving up the cost of energy, people will use less of it, reducing economic activity at home and at every level of commerce and travel. Such legislation would catastrophically weaken the economy of Illinois and the nation as a whole. Moreover, the environmental benefits received from spending $9.4 trillion over the life of the legislation would be negligible at best.
Knowing that we are stewards of our environment, Illinois needs workable energy solutions that maximize conservation and protection of the environment. Any solutions, though, must be grounded in objective, verifiable scientific data and sound economic principles. Cap and trade doesn't pass that test.
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