Government Study Shows Cap-and-Trade Will Raise Energy Prices

Democrats sought proof that the energy legislation would work. They might regret it.

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By Peter Roff, Thomas Jefferson Street blog

U.S. Reps. Henry Waxman of California and Ed Markey of Massachusetts, two of the leading Democratic co-sponsors of H.R. 2454—the American Clean Energy and Security Act of 2009, better known as the cap-and-trade bill—asked the United States Energy Information Administration to analyze their bill's impact on energy prices and the U.S. economy.

According to a draft of the report released Tuesday night that has already found its way into the media and is circulating through Washington, Waxman and Markey may now wish they hadn't.

The EIA is the official source of U.S. government statistics on energy. As its Web site boasts, it "provides policy-neutral data, forecasts, and analyses to promote sound policy making, efficient markets, and public understanding regarding energy and its interaction with the economy and the environment."

It is not a partisan organization and its record is impeccable.

The bottom line of the EIA's projections is that, through the year 2030—which is as far out as the modeling will allow it go with any degree of certainty—the legislation that passed the House "increases energy prices." EIA's independent conclusion confirms what the opponents of the cap-and-trade bill have been saying all along—that the regulatory approach backed by the Obama White House will lead to higher energy prices for the American consumer, making it a tax on American family energy use.

Allowing that the "allocation of free allowances to regulated electricity and natural gas distribution companies" will lessen the impact of the legislation on energy prices in the initial phase, through 2025, the EIA draft report says that the "average impacts on electricity prices in 2030 are projected to be substantially greater, reflecting both higher allowance prices and the phase-out of the free allocation of allowances to distributors between 2025 and 2030."

In plain English, that means the price of energy will go up a lot after 2025, solely because of what the cap-and-trade bill requires.

EIA also says that because the cap-and-trade bill that passed the House "increases the cost of using energy," that real economic output will decline. This, in turn, "reduces purchasing power, and lowers aggregate demand for goods and services," which pushes projected real gross domestic product down below where it is predicted to be if everything is otherwise left alone.

So the secret is out. The fig leaf has fallen. The real point of the cap-and-trade bill is to reduce the production of greenhouse gases by driving up the price of energy. The savings in emissions will come not from new, breakthrough technologies like solar and wind and cellulosic ethanol and advanced nuclear reactors like the Bush administration pushed for, but by reducing U.S. economic activity.

If energy is more expensive, people will use less of it. That's how the market works.

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