May 07,2009

Grassley: Cap and Trade System Likely Means Huge Energy Tax for Consumers

Hearing, “Auctioning under Cap and Trade: Design, Participation and Distribution of Revenues”
May 7, 2009

Some people may be wondering why the Senate Finance Committee is having a hearing on a cap
and trade system for greenhouse gas emissions. When it comes to the potential environmental
benefit of such a system, this committee probably does not have much to add to the work of the
Environment and Public Works Committee. However, we are talking about a program that will
raise hundreds of billions of dollars every year for the federal Treasury. With revenue of that
magnitude, it would be surprising if the Finance Committee were not involved. What’s more,
the cost will be paid by every American in the form of higher prices for energy, services, and any
product that takes energy to produce or transport to market.

President Obama has acknowledged that under a cap and trade system “electricity rates would
necessarily skyrocket.” When OMB Director Orszag was before this committee last year in his
previous capacity, he made it clear that “Under a cap-and-trade program, firms would not
ultimately bear most of the costs of the allowances but instead would pass them along to their
customers in the form of higher prices.” Those energy price increases will also have a significant
negative impact on economic growth and job creation. If that sounds suspiciously like a federal
energy tax to those of you listening, you’re right.

The Senate Finance Committee has jurisdiction over all federal taxes and has extensive
experience in considering the tax incidence of various policies. That experience will be
invaluable on this subject because a very important aspect in designing a cap and trade system is
who will ultimately bear the cost of the program and in what proportion. In short, who are the
winners and losers?

One troubling aspect of cap and trade is that the speculators from Wall Street, Chicago, and San
Francisco are foaming at the mouth to get their hands on trading profits from cap and trade
allowances. Hedge funds, private equity funds, and other companies have been lobbying
Congress to pass cap and trade legislation. In fact, Enron and AIG were early supporters of cap
and trade legislation. Democratic Representative John Dingell has been quoted as saying, “I
attended a meeting of an organization interested in climate change legislation and guess who it
was? It was a bunch of good-hearted Wall Streeters getting ready to cut a fat hog.” End quote.
Well, I want to make sure the American taxpayer is not the fat hog that gets cut.

Today’s hearing will help us to better understand the economic consequences of a cap and trade
system and the various trade-offs that Congress will need to carefully consider. Our
distinguished panel of witnesses will no doubt give us some food for thought on these important