Cap-and-Trade Costs: Place Matters

Much is in question today as Senate Environment and Public Works Committee chairman Barbara Boxer tries to push ahead with work on climate-change legislation, with Republicans threatening a boycott of the markup. What is certain, however, is that cost issues—costs to the overall economy, costs to certain sectors, and costs to families—will loom huge in the coming weeks.

On the overall impact, the most recent analysis by the Congressional Budget Office (CBO) estimates a cap-and-trade bill will depress GDP growth 0.2 percent to 0.7 percent by 2020, though some contend legislation will actually boost growth, while others like the U.S. Chamber of Commerce foresee massive layoffs. Across sectors, several studies show varied impacts, with energy-intensive industries losing more jobs than will be created in clean energy. But we’ll leave those aside for now.

Today, we are interested in the cost impact of legislation on households, and here we are generally reassured that the newest EPA analysis, which concludes that a climate package like the one being considered by the Senate would cost the average household only around $80 to $111 per year. That seems supportable. And yet, that’s a national figure, and so it remains unsatisfying. Of course, many, many national averages obscure significant variation across America’s diverse array of metropolitan areas. Also, our 2008 research that ranked the carbon emissions of the 100 largest metropolitan areas, located significant variation  between the energy use and emissions of the “cleanest” and the “dirtiest” metros.

So we decided to drill down a little on the household costs for metros, somewhat as Nate Silver did at the state level, using the CBO’s household cap-trade cost-impact figures for different income groups and the Brookings carbon footprint data for metropolitan areas. (Look here to check out what we did).

What did we find? Well, here’s the map:

And here’s the table of the metro-by-metro values.

What do we make of these results? The first thing to say is: The household costs of cap-and-trade compliance vary quite a lot, and depend quite a bit on what metro you live in. Ranging above and below the average $160 cost to a household nationally in 2020, the average metro figures range from a high of $277 per household in Lexington, KY to a low of just $96 in Los Angeles. Low costs are registered all across the West’s metros and in Northeastern metros like New York, Boston, and Rochester. Much higher costs will be borne by households in metros all across the upper South and Ohio Valley—places like Cincinnati, and Indianapolis, and Nashville. So once again, as we keep saying: Place matters.

In terms of what’s driving these variations and what we’re to make of these differentials, the bottom line is this: Differences in the compliance costs across metros result mostly from variation in carbon emissions. Residents of high emission metros emit roughly 2.4 times as much carbon per capita as residents in low emission metros and this translates into about $178 extra in costs per household. In that sense, the cap-and-trade system really will penalize high-energy-consumption households. But beyond that, it will also penalize sprawling, low-density metros that contend with extremes in temperatures and lack transit options. That’s because, as the earlier report confirmed, the per capita “carbon footprints” of metro areas are influenced by their development patterns, the existence of rail transit, the carbon content of electricity sources, as well as the weather.

Given these realities, you can see why the chief sponsors of climate legislation hail from California (Rep. Henry Waxman, Sen. Barbara Boxer) and Massachusetts (Rep. Edward Markey, Sen. John Kerry) while the leading opponents, like Rep. John Boehner, represent Ohio or the South. But you might also think that regions that want to do well for their citizens might want to manage growth a little better, provide transportation options, and think about cleaning up their energy sourcing. Look at the map, after all: Place matters!