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Responding to Republicans who have said a cap-and-trade bill could cost thousands of dollars a year for the average family, the Democratic sponsors of the bill are citing a new study from the Congressional Budget Office that they say shows their plan will be affordable.
"For the cost of about a postage stamp a day, all American families will see a return on their investment as our nation breaks our dependence on foreign oil, cuts dangerous carbon pollution and creates millions of new clean-energy jobs that can't be shipped overseas," Rep. Edward Markey said in a June 22, 2009, news release jointly issued with the co-sponsor, Rep. Henry Waxman.
Waxman and Markey, from California and Massachusetts respectively, are the authors of a bill that would set up a market for power companies and other polluters to buy and trade carbon credits. The goal is to force them to cut their harmful emissions and lower carbon pollution 83 percent by 2050. But critics say polluters will inevitably pass the cost of buying credits or cleaner technologies on to the consumer.
Putting a price tag on such a complex plan is tricky and controversial, as we note in our article Your Guide to the Cap-and-Trade Estimates . The Heritage Foundation, a conservative think tank, says that cap-and-trade could raise the average family's annual energy bill by $1,241. House Republicans have said that cap-and-trade could cost consumers up to $3,100, a figure they say came from a Massachusetts Institute of Technology report. But the writers of that report admonished the GOP for incorrectly interpreting their work; intially, the authors predicted it would cost consumers about $340 annually, and have since updated that estimate to $800.
Waxman and Markey are relying on a June 19 Congressional Budget Office analysis of their bill. The CBO is a well-respected, independent arm of Congress, but we have found its findings are occasionally mischaracterized by members of Congress. So we wanted to check whether Waxman is correctly summarizing the CBO's findings.
Indeed, the report cited by Markey and Waxman predicts the bill would have a net annual economywide cost of $22 billion — or about $175 per household — in 2020. Divide that number by 365 days, and you get about 48 cents. A first-class stamp costs 44 cents, so Waxman is close.
The CBO's estimate includes several assumptions about important decisions that still must be made by Congress, such as how much energy companies will pay to buy and trade polluting credits. But it's worth reading the fine print on this one, because CBO notes that the actual cost per family will vary depending on income. For example, low-income consumers could expect to save $40 a year, while wealthy people will see a net increase for energy costs of $235 to $340 every year. And the analysis does not include the costs or benefits of other parts of the bill, such as government efforts to quickly develop new technology, wrote CBO director Douglas Elmendorf in a June 20 blog post.
It's also important to note that the costs will vary year to year. As the bill stands, polluting allowances will initially be given away for free. But by 2035, about 70 percent of those allocations will be sold by the government. Supporters of the bill say federal revenue from the program would be used to pay for tax credits and rebates for the middle class.
CBO chose 2020 as a milestone for its analysis because it's a point at which the program would have been in effect for eight years, giving the economy and polluters time to adjust. But had CBO chosen a later date, the cost per family may have been higher because the government would gradually be charging polluters more.
Waxman and Markey are clear about these variables and omissions in their press statement. They note that the poorest people will gain from the bill, and point out that the study does not include every element that could contribute to cap-and-trade's cost.
But critics are more skeptical of the report. By not including all variables, the CBO report "grossly underestimates costs of cap-and-trade," said a memo from the Heritage Foundation, which has published many articles opposing the proposal. Among other things, Heritage says the study is flawed because it doesn't address economic changes resulting from restricted energy use and potential job losses.
For this Truth-O-Meter item, we are not addressing which study is best, but focusing on whether Markey correctly described the CBO's findings. He was close — off by just 4 cents — and he indicated it was an approximation because he said "about a postage stamp a day." So we find the statement True.
House Energy and Commerce Committee, Reps. Henry Waxman and Edward Markey comment on CBO report , accessed June 20, 2009
Congressional Budget Office, Director's Blog post on cap-and-trade estimate , accessed June 22, 2009
Congressional Budget Office, The Estimated Costs to Households From the Cap-and-Trade Provisions of H.R. 2454 , accessed June 22, 2009
Heritage Foundation, comments on CBO report , accessed June 23, 2009
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