The Small Business & Entrepreneurship Council recently discussed the impact of cap-and-trade and related energy tax hikes and guess what, they’re not crazy about them. Some of their findings are quite alarming, however — especially as they cite remarks Clemson University economics professor Segey V. Mityakov made when interviewed by the Council on Foreign Relations. He explains the costs could be dire to both businesses and consumers:
"Restricting carbon emissions by cap and trade is probably not a good idea even in a booming economy. Many studies assessing the costs of mitigation of climate change (either through some cap-and-trade system or by means of a carbon tax) indicate that the losses in consumer welfare are likely to be enormous. At the same time the costs of climate change itself are not very well estimated to justify swift mitigation efforts; different studies produce different recommendations. Thus, there is no clear consensus among the scholars whether and when such a scheme should be implemented in the first place.
"In the case of a recession, additional negative shock to the economy in a form of cap-and-trade system seems like even a worse idea. If cap and trade were created now, it would lead to higher energy prices for American consumers and businesses, as energy producers would be forced to switch from cheaper and "dirty" fuels such as coal to "cleaner" and more expensive sources of energy.
"Thus, it is likely to hit American households through the following channels. On the one hand, consumers are going to suffer directly from the increased prices of the energy and energy-intensive goods they buy. On the other hand, higher energy prices will increase the production costs of American producers, making American-produced goods less competitive in the world market. This would tend to make the current recession even more severe, as businesses, which cannot compete against foreign producers, would close. Facing increased energy costs and competition from abroad, some American companies would have an incentive to shift their production overseas where no cap-and-trade system is operating. These adverse effects on producers are likely to lead to additional job losses in the United States, further increasing the costs of the recession for the American households."