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“Coasts v. Middle America?” WSJ Gets It Wrong

In arguing against cap-and-trade policies, opponents often try to have their cake and eat it too, using contradictory logic and selective use of statistics to make their case. Take the latest op-ed from the Wall Street Journal, which basically argues that cap-and-trade policies are inevitably regressive.

The WSJ starts off with a fairly standard observation:

Once the government creates a scarce new commodity -- in this case the right to emit carbon -- and then mandates that businesses buy it, the costs would inevitably be passed on to all consumers in the form of higher prices.

Okay, that’s economics 101. But then comes this observation and chart (using WRI data), which suggests that some states will benefit at the expense of others:

California is the No. 2 carbon emitter in the country but also has a large economy and population. So the average Californian only had a carbon footprint of about 12 tons of CO2-equivalent in 2005. The situation is very different in Wyoming and North Dakota---paging Senators Mike Enzi and Kent Conrad---where every person was responsible for 154 and 95 tons, respectively.

This is where the Journal starts cherry-picking the data. While many factors can explain a state’s relatively high or low per-capita emissions, one of the most significant ones is electricity exports between states. In particular, Wyoming, North Dakota and West Virginia are huge electricity producers that export at least 60% of their electricity to neighboring states. On the other side, New Jersey, California, and Florida are huge importers: 41%, 38% and 20% respectively. But emissions are "charged" in the states where the fuel is consumed, which means states that produce more electricity than they use have disproportionately high emissions---especially in per-capita terms.

In other words, the chart in many ways reflects production rather than consumption. And as the Journal points out, production costs would “inevitably be passed on to all consumers." Owing to inter-state trade (especially for electricity), that means that all states---rich and poor---will share the burden of a cap on carbon.

There will no doubt be regional differences in the economic impacts of cap-and-trade. That’s why nearly every cap-and-trade proposal includes some form of cost mitigation, either directly to taxpayers (such as “cap-and-rebate”) or to “end-use energy consumers” (as in the US-CAP proposal). But to suggest that a few states will bear the lion's share of the burden while other states benefit is disingenuous and deeply misleading. The Journal can and should do better.

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