EPA’s New Analysis of Cap and Trade Same Old Faulty Logic
Nicolas Loris /
The Environmental Protection Agency released its economic analysis of the Kerry-Lieberman cap and trade legislation, the latest cap and trade bill to be released in the Senate. The result was nearly the same as the EPA’s analysis of the Waxman-Markey cap and trade bill passed in the House of Representatives last year: postage stamp per day costs. Instead of $176 per household for Waxman-Markey, Kerry-Lieberman would cost households $146 by 2050. Unfortunately for Americans, nothing substantial in the EPA analysis has changed; it is still unreasonable, faulty, and fragile. The reality remains that cap and trade is a substantial energy tax that will cause trillions of dollars in economic damage and kill jobs.
Inappropriate Use of Discounting
Most misleading in the EPA analyses of cap and trade is the use of discounting. A discount rate is an interest rate used to find present value of an amount to be paid or received in the future. In other words, present value analysis answers the question: How much would I have to have today in order to meet my financial obligations or pay certain costs in the future? Discounting is a legitimate tool in finance and for cost-benefit calculations. But discounting can give a much distorted view of costs, as is done by those misrepresenting the EPA analysis. Here’s an example to help clarify: