EPA, CAP-AND-TRADE AND OIL

Wednesday, June 23, 2010
Posted by David Lungren David_Lungren@epw.senate.gov

“After we came out of the church, we stood talking for some time together of Bishop Berkeley’s ingenious sophistry to prove the nonexistence of matter, and that everything in the universe is merely ideal. I observed that though we are satisfied his doctrine is not true, it is impossible to refute it. I never shall forget the alacrity with which Johnson answered, striking his foot with mighty force against a large stone, till he rebounded from it – ‘I refute it thus.'” Life of Samuel Johnson, by James Boswell

Dr. Johnson’s famous refutation of Bishop Berkeley came to mind as we pondered the claim, tirelessly recited by advocates, that cap-and-trade will end, or materially reduce, America’s dependence on oil. Yet just as Dr. Johnson struck the stone, we point to EPA’s recent analysis of the Kerry-Lieberman bill, specifically the chart on page 31, which starkly refutes the notion that cap-and-trade would make even a dent in domestic oil consumption.

As the chart clearly shows, by 2050, in a Kerry-Lieberman world, consumers continue to use oil in volumes only slightly lower than would otherwise be the case. One could reasonably speculate that American drivers might be willing to pay a premium to end dependence on foreign oil, but according to EPA, Kerry-Lieberman would raise gas prices to $5.00 a gallon, and yet all they would get is a budget-breaking gasoline tax.

EPA came to much the same conclusion with last year’s Waxman-Markey bill.

In that analysis, the agency found that cap-and-trade would not “substantially change consumer behavior in their vehicle miles traveled or vehicle purchases at the prices at which low GHG emitting automotive technologies can be produced;” and that it “creates little incentive for the introduction of low-GHG automotive technology.”

Denny Ellerman of the Massachusetts Institute of Technology agrees. “The link between the oil spill and the climate bill in my view is very weak,” Ellerman, an economist and part-time professor at MIT, recently told Greenwire. “People are kidding themselves,” he said, if they believe penalizing “carbon pollution” will significantly shrink oil imports or the need for more offshore drilling.

In addition to MIT and EPA, there’s the U.S. Energy Information Administration (EIA). An EIA analysis of the Waxman-Markey bill found that its cap-and-trade system would shrink petroleum use 5 percent by 2030, compared to the level expected in that year without the bill. That’s about 1 million barrels of oil a day. Right now, Americans consume about 19.5 million barrels a day. According to Ellerman, that meager 5 percent drop could drop further in the wake of rapid economic growth.

Maybe President Obama didn’t have time to read EPA’s or EIA’s analysis. He recently praised the Kerry-Lieberman cap-and-trade bill because it “will strengthen our national security by beginning to break our dependence on foreign oil.” If by “beginning to break our dependence” he means a slight reduction in oil use in 2050, we stand corrected. We think he means something else entirely. One prominent supporter of Waxman-Markey asserted that “one of the best ways to accomplish the overall goal is through what’s called a cap-and-trade mechanism…We won’t have to import so much gasoline and oil from a lot of countries that certainly don’t look out for our interests…” Except that we would.

Then there’s the issue of achieving a 14 percent reduction in greenhouse gas emissions below 2005 levels by 2020-the level proposed by President Obama, and one notably lower than the 17 percent reduction by the same year in Kerry-Lieberman. On this point we consulted Harvard’s Belfer Center for Science and International Affairs, which concluded in a recent report that gasoline prices would have to rise above $7 a gallon by 2020 to meet that level. “The overarching conclusion of this report,” said Belfer scholars, “is that reducing GHG emissions and fuel consumption in the transportation sector will be an enormous challenge that requires stronger policy initiatives than are currently being discussed by policy makers.”

The “stronger policy initiatives” of the kind Harvard thinks are necessary probably don’t jibe with what we support, but the original point still holds: Kerry-Lieberman, and any variants thereof, will make consumers, families, farmers-basically, anyone who drives-pay a massive gasoline tax for no apparent benefit-at least not the avowed benefit of which cap-and-trade supports are so fond of reciting.

Another point: when it comes to necessarily skyrocketing electricity prices under cap-and-trade, supporters routinely tout complicated wealth transfers in Kerry-Lieberman et al. to make consumers whole (they will do nothing of the kind). But as for higher gasoline prices, neither Waxman-Markey nor Kerry-Lieberman would help consumers shoulder the increased burden at the pump-a burden that is also highly regressive. Again, if the point is to keep prices high to change consumer behavior, i.e. drive less, Harvard tells us cap-and-trade is a simply massive tax that’s not high enough to achieve that goal.

As Dr. Johnson might have said, expecting cap-and-trade to meaningfully reduce oil dependence is the triumph of hope over analysis.

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