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State and federal policymakers are considering adopting a cap-and-trade program - on regional and federal levels - that they believe will reduce greenhouse gas emissions. Under such a program, a "cap" is set for overall emissions and then divided into allowances that are distributed among participating entities. Participants can "trade" credits depending on whether they exceed or stay within their allotted emissions allowance.
While proponents believe that a cap-and-trade program is a market-based approach that provides incentives for reaching environmental goals, critics argue that cap and trade is a hidden tax increase that will result in higher energy prices and do little, if any, good for the environment.
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Economic impacts of cap and trade on the Upper Midwest
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As policymakers consider adopting cap-and-trade programs, the economic impacts are being analyzed. Studies have been conducted by a variety of sources and have reported a wide range of results. Following are some examples of the potential economic impacts of cap and trade:
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- A report from the Environmental Protection Agency reinforces Midwest utilities' concerns that they would be harmed more than utilities in other regions under a federal cap-and-trade system. The Midwest would be unfairly impacted mainly because its utilities are smaller and rely more heavily on fossil fuels such as coal.
- A Beacon Hill Institute/Wisconsin Public Policy Institute study in 2009 estimates that if the state implements "Wisconsin's Strategy for Reducing Global Warming", cap and trade alone would eliminate 25,767 private-sector jobs and reduce disposable income by more than $1.8 billion in Wisconsin.
- A recent study by the Heritage Foundation of the proposed federal cap-and-trade bill found that the bill will cause unemployment to rise by nearly two million by 2012 (the first year of the program) and result in $9.4 trillion in total gross domestic product loss by 2035. The study also found that a family of four would be taxed the equivalent of $4,609 by 2035.
- A December 2008 study commissioned by Partners for Affordable Energy concluded that by 2015, a Midwest regional cap-and-trade program would increase household electricity prices by 17% and industrial electricity prices by 33% and result in a net loss of 21,000 jobs in Minnesota even when factoring in new "green energy" jobs.
- The Energy Information Agency recently estimated that gas prices could reach $5.10 a gallon by 2030 under a federal cap-and-trade system.
- Due to these increased energy costs, climate change policy proposals that are only regional or national in scope are likely to force companies to relocate overseas to low-cost nations where there is little or no regulation of emissions in order to stay competitive. This means jobs will be lost and economies impacted.
- This relocation could also result in emission migration, which can actually increase global greenhouse gas and criteria air pollutant emissions because industries in developing nations like China are much less efficient than industries in the United States.
- Learn more:
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In June 2009, the U.S. House of Representatives passed the American Clean Energy and Security Act of 2009 (authors are Henry Waxman, D-CA, and Edward Markey, D-MA) by a vote of 219 to 212. The legislation includes the creation of a federal cap-and-trade system for emissions. The bill attempts to cut greenhouse gas emissions below 2005 levels by 17% by 2020 and by more than 80% by 2050. Senator John Kerry, D-MA, and Senator Barbara Boxer, D-CA, introduced similar legislation in the U.S. Senate on September 30, 2009.
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President says cap and trade will come with high price
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The Midwestern Governors' Association, a regional climate initiative involving nine states and two Canadian provinces, recently released its recommendations as part of the 2007 Midwestern Greenhouse Gas Reduction Accord. The recommendations call for a regional cap-and-trade program that attempts to reduce greenhouse gas emissions by 20% below 2005 levels by 2020 and by 80% below 2005 levels by 2050. While the group favors a federal cap-and-trade program, it is pushing forward a regional program in anticipation that federal legislation may be stalled. In order to implement a regional cap-and-trade program, each state would need to pass its own legislation adopting the regional standards. Legislation was introduced in Minnesota in March, 2010.
Opponents of cap and trade argue that the Midwest would be disadvantaged compared to other regions due to the Midwest's greater reliance on coal and manufacturing industries. A study conducted by the American Council for Capital Formation and the National Association of Manufacturers on cap and trade - which examined emissions reduction targets similar to those supported by the Midwestern Governors' Association - estimates job losses between 637,000 to 850,000 nationally by 2030. For specific Midwest states, these estimates include:
- 42,100-57,300 job losses in Minnesota
- 41,600-56,700 job losses in Wisconsin
- 88,400-120,340 job losses in Illinois
- 5,310-7,231 job losses in North Dakota
Arguments also point out that the adoption of a regional cap-and-trade system could result in geographic barriers for the Midwest, as different regions pursue their own regulations that could cause jobs and industries to shift to other areas with lower standards.
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