CEIP FAQ

Question : what is cap and trade

Answer :

Cap and trade is any system in which a government sets a cap on how much of something can be produced, usually emissions. The cap is divided into permits, which are either given away or auctioned. The permits can then be freely sold to other companies.

Question : Why will cap and trade increase my energy costs?

Answer :

Cap and trade increases energy costs because it attaches a fee to emitting carbon dioxide. Eventually this fee increases until energy producers are forced to use alternative, more expensive forms of generation. Both the cost of the fee and the increased cost of alternate generation are passed along to the consumer in the form of higher energy prices.

Question : I’ve heard that this will only cost me a stamp a day, why is this calculation so much more?

Answer :

Some advocates for the cap and trade legislation claim that their bill will only cost households $175 per year, or about the same as a postage stamp per day. This claim was first made after a cost analysis of the bill was released by the non-partisan Congressional Budget Office. This claim was further supported when a comprehensive study was released by the Department of Energy’s highly respected statistical branch, the Energy Information Administration.

However, the claim is deeply flaws and very misleading. First, the CBO analysis looked at the cost of the bill in 2020 only, when the bill mandates a 17% cut in emissions and the permits are virtually free. As the cap and trade scheme increases the cut in emissions to 83% and begins to auction the permits, the cost of emitting carbon will necessarily rise, and the cost—much higher than a postage stamp—will be passed on to consumers. Secondly, the EIA analysis that supported the CBO estimate relied on an extremely favorable set of assumptions. However, the EIA study also analyzed the bill using more realistic assumptions, and found that the average US household could spend as much as $1,870¹ more on energy, and that electricity prices alone could increase by as much as 77%². The ACCF/NAM study, which used their own realistic assumptions in the same economic modeling system as the EIA, found the average US household’s electricity prices would rise by 50%.

Energy Cost Calculator

Question : What is the calculation based on?

Answer :

The energy cost calculator uses results from a study commissioned by the American Council for Capital Formation and the National Association of Manufacturers. The ACCF/NAM study of the House-passed cap and trade bill was performed by the non-partisan Science Applications International Corporation, using the same economic modeling system used by the Department of Energy’s highly respected statistical branch, the Energy Information Administration. The study was further refined to include results on a state-by-state level.  The state-by-state data is applied to your specific current energy costs to calculate your projected future energy costs under a cap and trade system.