Martin Feldstein Takes On Cap-And-Trade

by Pejman Yousefzadeh on June 1, 2009

Isn’t it marvelous what can be accomplished when one engages in simple cost-benefit analysis?

The Congressional Budget Office recently estimated that the resulting increases in consumer prices needed to achieve a 15 percent CO2 reduction–slightly less than the Waxman-Markey target–would raise the cost of living of a typical household by $1,600 a year. Some expert studies estimate that the cost to households could be substantially higher. The future cost to the typical household would rise significantly as the government reduces the total allowable amount of CO2.

Americans should ask themselves whether this annual tax of $1,600-plus per family is justified by the very small resulting decline in global CO2. Since the U.S. share of global CO2 production is now less than 25 percent (and is projected to decline as China and other developing nations grow), a 15 percent fall in U.S. CO2 output would lower global CO2 output by less than 4 percent. Its impact on global warming would be virtually unnoticeable. The U.S. should wait until there is a global agreement on CO2 that includes China and India before committing to costly reductions in the United States.

I continue to wonder why it is that we don’t opt for a smartly designed carbon tax.

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