Give President Obama credit for at least being close to honest about wanting to tax energy. His plan to auction off allowances for the use of fossil fuels is essentially an energy tax where nobody knows the tax rate in advance. Companies bid against each other at a government-run auction, and the company that loses the auction gets shut down by the EPA'so it's high stakes, but at least it's transparent and above board, and anybody can bid at the auction.
Unfortunately, this idea went from bad to worse in the House. Instead of auctioning the permits, almost all of them will be given away based on political considerations -- that's how they got enough votes to squeak the bill through on a 219-212 vote.
Senator Barbara Boxer, the biggest Senate proponent of cap-and-trade and the one who will dole out the billions of dollars worth of permits on the Senate side candidly explained how this works a couple of weeks ago:
"There's so much revenue that comes in from a cap-and-trade system that you can really go to a person in a congressional district and get enough votes there by saying, 'What do you need? What do you want? -- You can really help them.'"
All those permits -- worth billions --being given away for free are good news for the corporations that will get windfall profits, but they do nothing to soften the blow of steeply higher energy prices for consumers. As pro-cap-and-trade economists Kristen Sheeran and James Barrett have explained:
"Try buying World Series tickets from a scalper. Would he charge you any less if he found the tickets on the ground? Of course he wouldn't. Like energy, the street price of World Series tickets is based on supply and demand. The supply and demand for tickets is the same no matter how much the scalper paid for them, and so the price he charges you will also be the same no matter how he got them.
"Of course, the scalper would much rather get his tickets for free - and that's precisely the point. Polluters are financially much better off if permits are given away instead of auctioned, but the cost of cutting emissions and the resulting effect on energy prices will be the same no matter how the permits are delivered."
That's why electric utilities support the bill, because they stand to make a fortune from it. For instance, Exelon CEO John Rowe estimates that for every $10 increase in the price of cap-and-trade permits, Exelon's annual revenues will increase $750 million dollars. Those estimates can only mean that they believe, correctly, that they will be able to raise their rates considerably.
That means consumers pay more. A lot more. Not just for electricity. Same thing for gasoline, diesel, natural gas, and everything grown, shipped or manufactured in the United States, which all rely on the price of energy.
Don't take my word for it. In March, President Obama's budget director, Peter Orszag ,got right to the point:
"If you didn't auction the permits it would represent the largest corporate welfare program that has even been enacted in the history of the United States. All of the evidence suggests that what would occur is that corporate profits would increase by approximately the value of the permits."
So will the United States Senate follow the House's lead and grease a massive cap-and-trade energy tax through with the biggest corporate welfare program in history? And if they do, will the president sign into law what his own budget director called history's biggest corporate welfare program? It remains to be seen, but if they do, the consumers who will pay the price should understand exactly what's happening.