A “cap-and-trade” program for carbon dioxide emissions would hurt consumers and the poor disproportionately in North Carolina, according to a John Locke Foundation policy analyst.
“Punishing people for traveling, warming their homes, or turning on lights is irresponsible and inhumane,” said Daren Bakst, JLF Legal and Regulatory Policy Analyst, in a new Flashlight report.
North Carolina’s Legislative Commission on Global Climate Change is considering a cap-and-trade program for carbon dioxide emissions. In general, such a program would involve the government setting a cap on the amount of carbon dioxide emitted in the state, Bakst said. “Parties regulated in this program would have to hold an allowance for each measurable unit of carbon emissions — likely a ton,” he said. “These allowances could be sold to other parties that are seeking allowances.”
The alleged goal of a cap-and-trade program is to reduce carbon emissions by limiting the supply of carbon allowances, Bakst said. “In other words, cap-and-trade advocates want to create scarcity by not allowing supply to meet demand,” he said. “With scarcity, prices for carbon allowances would rise until they are in equilibrium with demand. As a result, costs of carbon emissions and energy would rise artificially.”
A cap on carbon dioxide emissions effectively means a cap on energy use, Bakst said. “Most carbon emissions come from the use of fossil fuels such as coal, natural gas, and oil,” he said. “The U.S. Energy Information Administration says fossil fuels account for 86 percent of total energy consumption. That means a cap-and-trade program would translate into higher prices for: gasoline; electricity, in all sectors of the economy; and winter heating. Consumers would pay higher prices for almost any good or service. Government would also face higher energy costs.”
The most famous cap-and-trade proposal is tied to the Kyoto Protocol. The program would have a devastating impact on the American economy, Bakst said. “This international treaty — not ratified by the U.S. government — seeks to reduce carbon emissions by 7 percent below 1990 levels,” he said. “The EIA found in 1998 that meeting that goal would have chopped 4.2 percent off the nation’s Gross Domestic Product in 2010. Well-known economist Arthur Laffer estimated the cost of Kyoto in reduced economic growth at $2,700 per person by 2020. That’s a hit of $10,800 for a family of four.”
The nonpartisan Congressional Budget Office has consistently released research discussing the negative impact of a cap-and-trade program on consumers and the poor, Bakst said. “Researchers say consumers would bear the brunt of the carbon allowance costs,” he said. “Price increases would disproportionately affect people at the bottom end of the income scale. For example, a 15 percent cut in carbon dioxide emissions would lead to price increases that would eat 3.3 percent of the average incomes among the poorest fifth of American households. The top earning families would pay 1.7 percent of their average income.”
Buying and selling of carbon emission allowances does not make a cap-and-trade program a “market-driven” option for reducing carbon emissions, Bakst said. “All too often, advocates of a cap-and-trade program sell the public a myth that the scheme is a market-based solution,” he said. “It’s the government — not the market — dictating the cap on carbon emissions. It’s government interference with the market that creates both the cap and the need to trade carbon allowances. This is not a market-based approach.”