The probable cost of the cap-and-trade program has been sharply disputed.
U.S. EPA's computer model forecasts a trivial increase for U.S. households. The growth of household spending would be about 0.2 percent lower in 2020 under the Waxman-Markey plan, compared to a business-as-usual scenario with no new climate legislation. Average household spending would drop by about $140 a year, in current dollars.
Gasoline prices would be 33 cents a gallon higher with the climate bill than without it in 2030. That is compared to the doubling of gasoline prices to $4 a gallon in 2007-08.
Critics of the program claim that the costs will be higher and the intrusion by government would be unprecedented in the post-World War II period.
The Republican staff of the House Oversight and Government Reform Committee said the cap-and-trade strategy would cost the average U.S. household an extra $1,600 a year. Myron Ebell of the Competitive Enterprise Institute testified to Waxman's committee that cap and trade would be "legalized plunder" by government.
"It takes the most important economic decisions out of the hands of private individuals acting in the market and puts them in the hands of the government," Ebell said.
Stavins said the high estimates of the bill's impact are off base, because they include the total costs of carbon allocations issued, but most of these will be traded back and forth and so won't hit households directly.
"Are we pushing this too fast? It seems like a reasonably prudent pace," Book said. "There isn't a good business in the world that can't adapt if you give it 15 years. If it can't, it will be replaced by someone else who can."
Said Mark Zandi, chief economist of Moody's Economy.com, "I think the economy can digest it if it is done in a clear, concerted and measured way."
Carbon allowances in the Waxman-Markey bill may have been the third choice in the climate policy debate.
"If you were king for a day, from a macroeconomic perspective, you wouldn't do it this way," Zandi said. "Most economists would say the best approach would be a carbon tax, not cap and trade."
But a tax was politically toxic. If a cap-and-trade plan was to be the strategy, better to do it by auctioning all allocations, putting them into the hands of people most willing to pay for them. That would generate tax revenues that could be put back into the hands of the people, Zandi added.
But cap and trade, Zandi said, was "as good a second-best as policymakers can get."
Reprinted from Greenwire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500