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Robert Higgs
By Robert Higgs August 13, 2010

State Sen. Bob Gibbs claims cap and trade as passed by the House will cost families $1,761 a year

Even though cap-and-trade legislation is stalled in Congress, that hasn't cooled its use as a campaign weapon.
Republicans are wielding it as an anti-job, anti-family energy tax pushed by Democrats.
GOP Senate candidate Rob Portman warns in a campaign ad that it would cost Ohio "jobs we cannot afford to lose." House Minority Leader John Boehner this week blasted the legislation as part of Democrats' "job-killing agenda." And in congressional races, Democrats who supported the Waxman-Markey cap-and-trade bill that passed the House last year are under fire for their votes.
In the 18th Congressional District, Republican State Sen. Bob Gibbs has his sights trained on Rep. Zack Space, a Democrat. Space voted for the bill even though he knew it "would cost the average household approximately $1,761 per year in increased energy rates," Gibbs says on his campaign website.
This is a claim we've heard before. We decided to once again run it through the Truth-O-Meter to set the record straight.
At its heart, cap-and-trade is a simple concept: To slow climate change, the government would set a cap on carbon dioxide and other greenhouse gas emissions. To comply, companies such as electric utilities must either upgrade to cleaner technologies or buy credits — also known as allowances — to continue polluting. Presumably, the costs associated with that end up getting passed on to consumers.
In a state like Ohio, a cap-and-trade bill could hurt, because there aren’t enough alternatives right now to coal-fired electricity. And there are fears that switching from coal to cleaner technologies could cost jobs. That's something that resonates in the 18th, which sprawls across much of Ohio's coal country in the Southeast part of the state.
The $1,761 figure has been widely circulated among cap-and-trade critics. A Google search for the $1,761 and "cap and trade" yielded more than 3,100 references almost instantly. The Gibbs campaign cited blogger Declan McCullagh, who wrote about it Sept. 15 in his Taking Liberties blog at CBS News online.
We looked into it after Sen. Lamar Alexander made a similar remark that also cited the McCullagh article as its source. Here's what we found.  
McCullagh wrote about Treasury Department documents acquired by the Competitive Enterprise Institute, a conservative think tank, through a Freedom of Information Act request. Some documents were from 2008, shortly after the election, according to the group. Others appear to be from early 2009. 
"The Obama administration has privately concluded that a cap and trade law would cost American taxpayers up to $200 billion a year, the equivalent of hiking personal income taxes by about 15 percent," McCullagh wrote. "A previously unreleased analysis prepared by the U.S. Department of Treasury says the total in new taxes would be between $100 billion to $200 billion a year. At the upper end of the administration's estimate, the cost per American household would be an extra $1,761 a year."
The Treasury Department never cites the $1,761 figure. McCullagh told us via e-mail when we checked this figure in September 2009 that he came up with it on his own. He divided $200 billion by the number of households in the United States. According to the census, there are about 113.5 million households in the country at the time.

People involved in the climate change debate told us then that McCullagh's methodology is flawed. Stephen Seidel, vice president for policy analysis and general counsel for the Pew Center on Global Climate Change, said that the math is too simple and doesn't reflect the true impact of the cap and trade legislation. 
For example, the Treasury documents reflect the Obama administration's plan that every polluting permit would be sold, starting when the bill was enacted. Waxman-Markey scaled that back. It would give out about 85 percent of the permits for free early in the bill's implementation.

Also, the cap-and-trade bill provides that as much as 40 percent of the revenue from sales of those permits would go back to electric utilities to be passed on to consumers to offset higher utility rates. The money would be passed to consumers through rebates or expanded efficiency programs, and an additional 15 percent of the revenue would go directly to low-income consumers.

"What [Treasury] was looking at was a situation where 100 percent of the permits were auctioned, and ignored what would be done with revenue," Seidel said. "The bottom line is that it goes back to the consumers."  
And higher energy costs are not a sure thing. Regional cap-and-trade programs in Europe and in the northeast United States show that auctioning most or all credits have actually decreased the cost of energy, said Barry Rabe, a public policy professor at the University of Michigan. 
Meanwhile, the entire debate may be moot. The Senate wouldn't rubber-stamp the Waxman-Markey measure. Sen. John Kerry, a Massachusetts Democrat, and Sen. Joe Lieberman, an independent from Connecticut, introduced a slightly watered-down version, and coal-state Democrats like Ohio's Sherrod Brown were pushing to get concessions added for places like the Buckeye State, but even that could not get traction. Senate Majority Leader Harry Reid tabled it in July.
Regardless, what all of this illustrates is that there are various plans out there, in addition to Waxman-Markey itself, and different interest groups, economists and lawmakers use different analyses to project the potential job losses or gains from these proposals, and the different costs involved. Relying on the calculations of a blogger rather than computations from respected analysists might border on reckless.
That takes us back to the annual family cost estimate that Gibbs is using and others have used. The claim that households will pay $1,761 a year in higher energy costs was based on calculations that were fundamentally flawed. The Treasury data that was used wasn't even prepared based on the legislation that was passed by the House. The data did not account for revenue that would be returned to consumers in the form of rebates and other efficiency measures. Furthermore, the Treasury figures were prepared under an assumption that that all permits would be sold, which, ultimately, was not the form that Waxman-Markey took.
When Lamar Alexander used the number in a statement, we rated it False. Yet here it is again, still relying on the the same flawed data and just as wrong as when we said it was wrong then.
Strike a match. We rate this statement about the costs of cap-and-trade worthy of Pants on Fire.

Our Sources

Email exchange with Dallas Gerber, grassroots director for Bob Gibbs for Congress

The New York Times, Inside Congress (Waxman-Markey voting charts), Aug. 10, 2010, search for $1,761 and "cap and trade," Aug. 11, 2010
Declan McCullagh, Taking Liberties on CBS News online, "Obama Admin: Cap and Trade Could Cost Families $1,761 a Year," Sept. 15, 2009

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State Sen. Bob Gibbs claims cap and trade as passed by the House will cost families $1,761 a year

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