Cap and Trade in the Western States

In a review of the claims made by the Western Climate Initiative, the Beacon Hill Institute at Suffolk University in Boston identified several flaws made by the seven-state consortium, calling into question claimed cost savings ranging between $11.4 billion and $23.5 billion. These flaws render WCI’s projections useless in determining the WCI’s cost to state economies.

The authors of the report write, “Using the Western Climate Initiative’s own projections of increases in fuel costs, BHI finds that the policies will decrease employment, investment, personal income and disposable income. While WCI claims the ‘design is also intended to mitigate economic impacts, including impacts on consumers, income, and employment,’ they fail to quantify the impacts.” California could lose as many as 78,694 jobs and see a $30.4 billion reduction in personal income by the year 2020. If fuel cost increases are less severe than WCI assumed, the devastation would be even worse.

Beacon Hill Institute found that WCI’s recommendations “would have substantial negative effects” on the economies of its member states. Under a scenario in which 100 percent of greenhouse gas emission permits would be auctioned off to emitters in a cap-and-trade scheme, BHI determined that the seven states:

–Would lose from 103,931 to 251,674 private sector jobs, while the permit revenue would allow the states to hire 57,269 to 142,241 state employees;

–Would put investment by firms at serious risk by slowing investment in the region by $548 million to $1,448 million;

–Would diminish total personal income, which would fall by $6.35 billion to $18.31 billion per year.
WCI’s plan’s negative economic impacts stem from the price and tax increases imposed on the energy and transportation sectors. Because a cap on carbon emissions is effectively a tax on energy production that is passed to industry, businesses and consumers, the effect is likely to drive commerce and jobs to other states or countries.

“The cap-and-trade program would increase input costs for producers located within WCI states, placing them at a competitive disadvantage to those outside the areas,” BHI noted. “The pressure would be especially acute for producers that utilize large amounts of energy in the production process, such as manufacturers.” As just one example, the cost of transportation and water infrastructure, pet projects of the Governor, would skyrocket as steel and concrete prices rise.

This is NO way to cope with our declining economy or to help our ever-growing state budget problems. It is time to allow our economy to right itself, before continuing on a quest to try to control the climate.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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