Cap-and-Trade Memos Fire Up the Skeptics

By Steven Mufson
Washington Post Staff Writer
Thursday, September 17, 2009

Climate-change legislation might be on the Senate's back burner, but the heat's still on climate politics.

The latest flare-up occurred this week when the Competitive Enterprise Institute, which questions whether human and industrial activity is linked to global warming, released a one-page internal Treasury Department memo from March estimating potential government revenue from a cap-and-trade climate bill at $100 billion to $200 billion a year. The memo assumed that 100 percent of the emission permits would be auctioned, unlike in the plan approved by the House in June. The Treasury had blacked out a phrase at the end of the following sentence: "It will raise energy prices and impose annual costs on the order of . . ."

CEI also released a second memo, written by the presidential transition team late last year, which said that as a result of climate action in general, without reference to any specific plan, "economic costs will likely be on the order of 1 percent of GDP, making them equal in scale to all existing environmental regulation."

A CBS News blogger named Declan McCullagh seized on the documents, which CEI obtained through a Freedom of Information Act request, and said: "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." He added: "At the upper end of the administration's estimate, the cost per American household would be an extra $1,761 a year."

But environmental organizations fired back that McCullagh and the CEI were making two key false assumptions. In the auction plan initially proposed by President Obama, revenue from cap-and-trade allowances would have been used to cut taxes. Many economists, including those who are Republican, have argued that using such revenue to cut payroll taxes would be good for the economy. Second, the plan in the March Treasury memo is not the one being debated in Congress.

"Even if a 100 percent auction was a live legislative proposal, which it's not, that math ignores the redistribution of revenue back to consumers," said Tony Kreindler, spokesman for the Environmental Defense Fund. "It only looks at one side of the balance sheet. It would only be true if you think the administration was going to pile all the cash on the White House lawn and set it on fire."

That did not satisfy GOP lawmakers. "The current administration claims to be the most transparent in American history, yet it's been hiding a report showing its cap-and-trade energy plan would cost up to $200 billion every year," said Sen. Lamar Alexander (Tenn.).

The Treasury said the furor was much ado about little. The March memo was not based on any independent Treasury analysis and summarized other studies. The transition team memo said that the government could use the revenue to "offset distortionary taxes on labor or capital."

"The reporting on the Treasury analysis is flat out wrong," said Alan B. Krueger, Treasury assistant secretary for economic policy. "Treasury's analysis is consistent with public analyses . . . and the reporting and blogging on this issue ignores the fact that the revenue raised from emission permits would be returned to consumers under both administration and legislative proposals."

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