Why Environmentalists and Energy Producers Prefer Cap and Trade

Conn Carroll /

The Politico has a story today on the Warner/Lieberman cap-and-trade bill expected to win floor consideration later this spring. The article focuses on whether or not the bill should include a cap on the price of carbon credits, and whether or not credits should be given away, or auctioned off to companies. If the cap and trade system is to be in any way effective (and so far Europe’s cap and trade system has been a complete failure), then the issues covered in the Politico article are irrelevant. Whether they are given away or auctioned off, any costs born by manufactures and utility companies will be passed on to the American consumer.

Cap and trade is nothing more than an energy tax in disguise. It works by reducing the demand for energy by increasing its price. It is a regressive tax, as low-income households spend a larger share of their income on energy. The genius of cap-and-trade as opposed to an honest carbon tax, is that the tax is hidden. Instead of a line on a home heating bill itemizing the tax, cap-and-trade hides the costs of reducing carbon emissions through complex transactions that the public never sees. The costs to the economy are real. Heritage calculations show under the Warner/Lieberman bill: