The Wonk Room

Newt Gingrich’s Voodoo Cap-And-Trade Economics

Our guest blogger is Laurie Johnson, Chief Economist for the Natural Resources Defense Council’s Climate Center.

Newt Gingrich has taken to calling President Obama’s proposal to cap global warming pollution an “energy tax,” even specifically claiming it would be a “hidden $1,300-per-family energy-tax increase“:

If the country’s No. 1 priority is to create jobs, then a hidden $1,300-per-family energy-tax increase in the guise of a cap-and-trade system is absolutely destructive. Herbert Hoover raised taxes in 1932, and it further crippled the economy.

Newt Gingrich’s assertion is voodoo economics — designed to scare us into believing we can’t afford climate protection.

In Newt’s nightmare tax math, the economic value of the carbon market just disappears! He assumes the money doesn’t get returned to taxpayers; it doesn’t get spent on any worthwhile investments in cleaner, smarter energy resources; it doesn’t get invested in ways to reduce the energy we waste today, saving us money; it doesn’t get used to help communities adapt to a changing climate; it doesn’t get used to address regional differences in the cost of cutting global warming pollution. No, in Newt’s scary world, the money just vanishes, leaving us only with the bills. Fortunately, in the real world the dollars created by the carbon market will go to all of these purposes, providing us with a safer climate, reduced dependence on oil imports, and creating new jobs to build our economic recovery.

In reality the cost of climate protection is far smaller than the size of the carbon market, from which the $1,300 estimate is derived. The cost to physically achieve the emission reductions — i.e., the compliance costs for polluting corporations — are roughly 10% of total carbon market value, according to the Energy Information Administration. The remaining 90% is just shifting money away from polluting activities toward cleaner goods and more secure sources of energy.

So, even if Newt were right that the total carbon market size worked out to $1300 per household, the actual cost of cutting that pollution would be more like $130 per household per year (minus any savings we earn from increased energy efficiency), or $2.50 a week.

And for that $2.50 (or less) per week we’d be getting a bargain that is hard to beat.

Just four categories of climate damages alone (hurricanes, higher energy bills, property lost to sea level rise, water supply impacts) are predicted to cost the average household $2,000 a year by 2025, $3,000 in 2050, rising rapidly to over $11,000 by the end of the century. And these estimates ignore (because they are too hard to count accurately), the added costs of droughts, floods, wildfires, agricultural damages, and the value of lost lives. We may not be able to eliminate all of these costs by acting now to cut pollution, but we sure can help reduce them dramatically.

So think twice before you rely on Newt for financial advice.

Crossposted from the NRDC Switchboard.