Representative Chris Van Hollen (D–MD) is expected to soon introduce a new rendition of his cap-and-dividend carbon tax.
Like earlier versions, Van Hollen’s bill would require carbon-dioxide-emitting industries (such as electric utilities) to buy emission permits. Some of the money raised would be divvied up to energy consumers to make up for the higher energy costs. And just like other versions, even with the rebates, American families will be poorer—with little to show for it.
Van Hollen recognizes that pricing carbon will hit American families. What he fails to recognize is just how hard they will be hit. Even if all of the revenue were rebated back to Americans to make up for the higher energy costs, the cost inflicted from a carbon tax would cause economic damage no rebate check would undo.
It’s unlikely that a rebate check would even make up the difference in higher energy costs. Even if it did, however, because energy is a critical input for all sectors of the economy, families would be hit again and again when the prices of goods and services increase. Businesses would cut back on hiring, and families would have less money to spend, shrinking the economic pie. A rebate check may buy a sliver of that pie back, but a much larger chunk will be unnecessarily destroyed.
Questions still remain about what the final version will look like and if it will be any different from all the other costly carbon tax proposals. Which industries would be regulated, and would some companies get bought off with free permits to continue emitting carbon dioxide? When the Waxman–Markey cap-and-trade legislation was being debated in 2009, every special interest was trying to obtain an exemption or a slice of the projected revenue from the increased price of carbon.
Remember, many of the original cap-and-trade bills contained proposals to auction off the tradable permits to the highest bidder, but by the time the special interest groups involved themselves, nearly all of the projected revenue was doled out in allowances to those groups that had a seat at the table.
There are plenty of problems with the proposal that should give legislators pause—if for no other reason than for fear of addressing a symptom rather than a cause.
Nicolas Loris is a Policy Analyst at The Heritage Foundation . http://www.heritage.org/ Roe Institute for Economic Policy Studies. Loris researches and writes about energy, environment and regulation issues such as the economic impacts of climate change legislation, a free market approach to nuclear energy and the effects of environmental policy on energy prices and the economy.