More fuzzy math? How GOP estimates carbon tax impact

McClatchy NewspapersApril 9, 2009 

WASHINGTON — Congressional Republicans are trying to convince consumers that the White House and Democratic lawmakers will raise their taxes every time people flick on a light switch.

They're gaining some political traction as Washington struggles to craft legislation to reduce greenhouse gas emissions, one of the Obama administration's top 2009 priorities.

Republicans' main attack is a claim that climate legislation will cost U.S. households $3,100 a year. They got the number by doing some additional math based on a Massachusetts Institute of Technology study, and they're sticking with it, even though John Reilly, an MIT economist and the author of the study, told them that they misinterpreted his work and that their number is wrong.

The cost to consumers will be the top issue this month when Congress gets to work on a bill to limit greenhouse gas emissions for the first time in the U.S. Economists say the bill would raise energy prices from fossil fuels as the country makes a transition to cleaner energy sources.

Those who back emissions controls say the cost of doing nothing will be higher because of the risk of such problems as inundated coastlines, droughts and more extreme heat waves. Raising the cost of coal and oil also would create incentives for renewable energy and energy efficiency.

In Congress, some Democrats and at least one Republican senator support a plan that would return all the money the government collects in the program to all Americans to compensate for the higher energy costs.

Republicans, however, say that there's no agreement yet on how to control costs, so they didn't factor that in.

Republicans in the House of Representatives explained on a release how they got their cost estimate, using a total of climate permit revenues from a hypothetical climate system that MIT studied two years ago:

"We took MIT's own number — $366 billion — and divided that by the number of U.S. households. Assuming 300 million people, and an average household size of 2.56 people (or 117 million households), each household would pay $3,128."

Figuring what households would actually pay, however, is more complex, said W. David Montgomery of the consulting company Charles River Associates, which did one of many cost estimates of last year's climate bill. He said the Republicans' figure was a correct calculation of how much the government could collect, divided by the number of households, but, he said, "It all depends on what the government does with the money."

Antonia Ferrier, a spokeswoman for Rep. John Boehner of Ohio, the House Republican leader, said that so far the Democrats' plan hasn't spelled out whether there'd be any rebates for consumers.

If that's added or Democrats promise they won't use the funds for anything else, "then we can change our numbers," she said.

The draft of the climate bill in the House contains a provision to limit greenhouse gas emissions known as "cap and trade." It would require certain companies to buy permits from the government that would allow a limited amount of greenhouse gas pollution. The limit would be lowered each year. Some proposals would give some of the permits to companies for free.

It's expected that companies would pass the costs on to consumers.

What the bill doesn't spell out yet is how the government would compensate consumers for higher electric, gasoline and heating bills. The size of the increase is unknown because it depends on factors that are still being discussed — including how strict the limits would be.

The draft bill in the House contains no language on paying back consumers. Lawmakers are working on those provisions. Under one proposal, revenues the government collects would be returned to consumers.

Reilly, of MIT, wrote a letter to Republicans saying that their figure didn't accurately account for the cost of the permits and that the total cost of those pollution permits would have little bearing on the actual cost to the average person.

Republicans dismissed his letter. Nonetheless, there's some evidence that their political offensive is working.

Republican campaign committees have been sending out press releases and e-mails to districts and states represented by vulnerable Democrats.

Last week, for instance, the National Republican Congressional Committee sent 44 different press releases to media in 44 districts. Each had the same message: "(Incumbent's name) failed to be up front with his constituents today when he supported a budget proposal that omits major details about how Congress intends to raise the money to support their new government spending."

The release then details the member of Congress' vote on the $3.6 trillion fiscal 2010 budget. The budget creates a "reserve fund' for carbon emissions reduction legislation, but provides no details.

At the Capitol, Republican leaders have taken every opportunity to blast the Democrats' plans.

Just before the House approved the budget on a largely party-line vote last week, Boehner said that the energy plan would "cost the average family $3,100 a year."

"As we flip on a light . . . in Ohio, our electricity rates go up at least 50 percent the day this bill passes, 50 percent. And they could go as high as 100 percent."

Senate Republicans also have used the $3,100 cost estimate. Sen. John Thune, R-S.D., among others, warns of a "national energy tax." Many congressional Democrats and some Republicans are eager to act against global warming, but seem to realize they have a political problem.

House Speaker Nancy Pelosi, D-Calif., said that because rates could go up, "you must have a credit immediately, dividends, right on that same bill. . . . We can't go forward unless we make the ratepayer whole."

Pelosi hasn't spelled out how that would be done, but a diverse group of lawmakers, including Rep. Chris Van Hollen, D-Md., Sen. Bob Corker, R-Tenn., and others, are pushing a form of "cap and dividend" plans. Van Hollen, who's Pelosi's assistant for policy issues, would sell all the allowances at an auction and return a monthly "consumer dividend' to mitigate higher energy prices.

Pelosi said she understands the sensitivity of the issue, and how easily opponents can use it against incumbents.

"Even if you had the votes," she aid, "You would not want to do this unless you had consensus."

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