Last month, MIT economics professor John Reilly was surprised to learn that his April 2007 report was in the news two years after its release.
His research on the costs of cap-and-trade systems found only a modest cost for American families under the plan. But, some members of Congress read Professor Reilly's results differently, confusing the amount of money raised through auctions with the cost imposed on consumers. Based on that false information, they stepped up to the megaphone to warn citizens of thousands of dollars in annual price increases.
Reilly promptly sent a cease-and-desist letter to House Republican Leader John Boehner, hoping the Congressman would rescind his comments and set the record straight.
Unfortunately, despite Professor Reilly's complaints, some members in the House continued to manipulate the research to say costs could be 10 to 11 times higher than what the report found. Congressman Louie Gohmert (R-Tex.) even scoffed at Professor Reilly's attempts to correct the misperceptions by saying: "he may go to M-I-T but he is an N-U-T."
The question of the cost of climate change legislation has rightly emerged as a major theme of the debate on the Hill. Most recently, Charlie Rangel, Chairman of the powerful House Ways and Means Committee announced last week that he would insist on using auction revenues to reimburse American families for increases in energy prices.
Since middle and lower classes pay a higher percentage of their income on energy, they are hit hardest by increases. So while a cap-and-trade would not cost nearly as much as Congressman Boehner says it would, it would still mean a few hundred dollars a year out of the pockets of those who could afford it least. But with a cap-and-dividend type plan like Rangel's, Obama"s or Congressman Van Hollen's, we could avoid this unfair burden without compromising our green goals.
The two most important questions to ensure a fair cap-and trade plan are whether permits will be auctioned, and whether proceeds will be returned to American families. Last week, a number of economists announced their support for the Van Hollen bill that that auctions permits and refunds auction revenue. Paul Krugman recently wrote: "If emission permits were auctioned off -- as they should be -- the revenue thus raised could be used to give consumers rebates or reduce other taxes, partially offsetting the higher prices." In fact, Professor Reillly has found that distributing auction proceeds to American families can completely offset increased energy prices for low and middle income Americans.
There is nothing wrong with focusing on what climate change legislation will cost Americans. However, there is clearly something wrong with trying to shoehorn academic research into a scary scenario and passing it off as legitimate political discourse. To err is human-- anyone can be forgiven for misunderstanding a sophisticated economic analysis of a complex problem. But to refuse to correct mistakes and instead continue to perpetuate false ideas is malpractice for a political leader.
Obviously, there are some who do not believe climate change is a problem and are likely to resist legislation in any form. But no one should confuse Professor Reilly with this crowd. As he said to Congressman Boehner: "It will take efforts in the US and abroad to reduce emissions substantially to avoid the most serious risks of climate change." For those of us who agree, and who also genuinely want to prevent American families from bearing an unfair share of the costs, these cap-and-dividend plans provide the best road forward.