According to an MIT study, cap and trade could cost the average household more than $3,900 per year

Fuzzy Math. By John McCormack
According to an MIT study, cap and trade could cost the average household more than $3,900 per year.
Apr 22, 2009 12:00:00 AM

Excerpts:

It's just another inconvenient truth: If Americans want any of the government remedies that would supposedly save a planet allegedly imperiled by global warming, it's going to cost them.

Just how much it will cost them has been a point of contention lately. Many congressional Republicans, including members of the GOP leadership, have claimed that the plan to limit carbon emissions through cap and trade would cost the average household more than $3,100 per year. According to an MIT study, between 2015 and 2050 cap and trade would annually raise an average of $366 billion in revenues (divided by 117 million households equals $3,128 per household, the Republicans reckon).

But on March 24, after interviewing one of the MIT professors who conducted the study on which the GOP relied to produce its estimate, the St. Petersburg Times fact-check unit, Politifact, declared the GOP figure of $3,100 per household was a "Pants on Fire" falsehood. The GOP claim is "just wrong," MIT professor John Reilly told Politifact. "It's wrong in so many ways it's hard to begin."

According to Politifact, Reilly's report included an "estimate of the net cost to individuals" that "would be $215.05 per household. A far cry from $3,128."

Running with Politifact's report, bloggers at Think Progress called the GOP's claim a "deliberate lie," a "myth", and an "outright lie". On April 1, MSNBC's Keith Olbermann said that cap and trade's "average additional cost per family six years from now would be 79 bucks, minus the amount foreign gas prices would drop based on decreased demand, and minus lowered health care costs, because of the cleaner atmosphere. Thirty-one bucks, 3,100 bucks, it's all the
same to Congressman John the mathlete Boehner, today's worst person in the world." On April 8, MSNBC's Rachel Maddow said of the GOP's figure: "No. Pants on fire. The MIT guy says 'no.' That's not what the study says. Not true. You can't say that."

[...]

When the Star-Tribune's opinion page editor Eric Ringham was contacted about Bachmann's use of the figure, he apologized for letting her include it in her column. "It wasn't on my radar. I'm embarrassed to have let it go unchallenged," Ringham told Think Progress. "You can rest assured this study is never going to be represented in the paper again . . . without confirmation it's being accurately portrayed."

[...]

But, as the saying goes, a lie can make its way halfway around the world while the truth is putting its shoes on. During a lengthy email exchange last week with THE WEEKLY STANDARD, MIT professor John Reilly admitted that his original estimate of cap and trade's cost was inaccurate. The annual cost would be "$800 per household", he wrote. "I made a boneheaded mistake in an excel spread sheet. I have sent a new letter to Republicans correcting my error (and to others)."

While $800 is significantly more than Reilly's original estimate of $215 (not to mention more than Obama's middle-class tax cut), it turns out that Reilly is still low-balling the cost of cap and trade by using some fuzzy logic. In reality, cap and trade could cost the average household more than $3,900 per year.

The $800 paid annually per household is merely the "cost to the economy [that] involves all those actions people have to take to reduce their use of fossil fuels or find ways to use them without releasing [Green House Gases]," Reilly wrote. "So that might involve spending money on insulating your home, or buying a more expensive hybrid vehicle to drive, or electric utilities substituting gas (or wind, nuclear, or solar) instead of coal in power generation, or industry investing in more efficient motors or production processes, etc. with all of these things ending up reflected in the costs of good and services in the economy."

In other words, Reilly estimates that "the amount of tax collected" through companies would equal $3,128 per household--and "Those costs do get passed to consumers and income earners
in one way or another"--but those costs have "nothing to do with the real cost" to the economy. Reilly assumes that the $3,128 will be "returned" to each household. Without that assumption, Reilly wrote, "the cost would then be the Republican estimate [$3,128] plus the cost I estimate [$800]."

In Reilly's view, the $3,128 taken through taxes will be "returned" to each household whether or not the government cuts a $3,128 rebate check to each household.

He wrote in an email:

It is not really a matter of returning it or not, no matter what happens this revenue gets recycled into the economy some way. In that regard, whether the money is specifically returned to households with a check that says "your share of GHG auction revenue", used to cut someone's taxes, used to pay for some government services that provide benefit to the public, or simply used to offset the deficit (therefore meaning lower Government debt and lower taxes sometime in the future when that debt comes due) is largely irrelevant in the calculation of the "average" household. Each of those ways of using the revenue has different implications for specific households but the "average" affect is still the same. [...] The only way that money does not get recycled to the "average" household is if it is spent on something that provides no useful service for anyone--that it is true government waste.

He added later: "I am simply saying that once [the tax funds are] collected they are not worthless, they have value. If the Republicans were to focus on that revenue, and their message was to rally the public to make sure all this money was returned in a check to each household rather than spent on other public services then I would have no problem with their use of our number."

Most Americans probably care a great deal whether they would get to spend that $3,128 themselves or the government spends it on programs to put a chicken in every pot and a Prius in every garage. And the fact is, it's anybody's guess how cap-and-trade revenues would end up being spent. Obama has suggested he would like to use most of cap-and-trade revenues to fund his "making work pay" middle- and lower-class tax credit ($400 per individual and $800 per family per year). Congressional Democrats have left the door open to spending the revenues to "invest in clean energy jobs and cost-saving energy efficient technology," as Rep. Markey's staffers have written.

After corresponding with Reilly, I contacted Politifact's reporter Alexander Lane and editor Bill Adair to ask if they would correct their report that the GOP's estimate of cap and trade's cost is a "pants on fire" falsehood.

Lane wrote in an email: "The detail of my piece that you think needs correcting seems to be in flux...". The "detail" to which he referred was Reilly's admission that the real cost per household would be $800--not $215 per household as Politifact originally reported.

While the discrepancy between these figures was solely Reilly's fault, Politifact's report contained inaccuracies that it should have been able to avoid. Politifact accepted Reilly's logic that the $3,128 collected per household via taxes translates to a net-cost of $0 per household. It reported that "results of a cap-and-trade program, such as increased conservation and more competition from other fuel sources, would put downward pressure on prices," but it didn't make clear that Reilly's estimate of the "real cost"--which didn't include the $3,128 per household--already accounts for these downward pressures. "Moreover," Politifact added, "consumers would get some of the tax back from the government in some form." In fact, Reilly assumed that all--not "some"--of the tax revenue would be returned. Politifact and other news outlets reporting on Reilly's criticism of the GOP's estimate have not made it clear that taxpayers would "get" some or most of this money back through government spending.

When I asked Bill Adair over the phone last week if Politifact would correct its report, he didn't answer the question and ended our conversation by saying: "You're getting me at a really bad time. I would love to talk about this any time tomorrow." Adair did not reply to further inquiries.
On Monday, Politifact won a Pulitzer prize. It has not yet corrected its report.

John McCormack is a deputy online editor at THE WEEKLY STANDARD.

Correction: An earlier version of this article incorrectly reported that Reilly's estimated "real cost" per household was $800 for a family of four. In fact, Reilly calculated this $800 cost for the average-sized American household--2.56 people, the same figure Republicans used in their calculation.