Waxman-Markey: A $3.6 trillion gas tax

by Marlo Lewis on October 21, 2009

Senators Kit Bond (R-MO) and Kay Bailey Hutchison (R-TX) have just released a report, Climate Change Legislation: A $3.6 Trillion Gas Tax, which estimates how much additional pain at the pump the Waxman-Markey would inflict on U.S. consumers.

The Waxman-Markey bill (like its Senate companion, Kerry-Boxer) aims to cap U.S. carbon dioxide (CO2) emissions from 2012 to 2050. Bond and Hutchison estimate the bill’s impacts on motor fuel prices during 2015 to 2050. Of course, their study depends on assumptions regarding population growth, GDP growth, and technology change out to 2050. But in that regard, the Bond-Hutchison report is no different from any other study of Waxman-Markey, including studies touted by the bill’s supporters.

A virtue of this report is its straightforward, uncomplicated methodology. Anyone who can do arithmetic can understand how Bond and Hutchison arrive at their conclusions.

Here’s how Bond and Hutchison proceeded:

  • For estimates of how Waxman-Markey would affect motor fuel prices, they relied on a study prepared by Charles River Associates for the National Black Chamber of Commerce (NBCC). The NBCC study estimates, for example, that Waxman-Markey would increase the average price per gallon of motor fuels by 24¢ in 2020, 38¢ in 2030, 59¢ in 2040, and 95¢ in 2050.
  • Bond and Hutchison also use the NBCC study’s estimate of how much fuel Americans would consume annually from 2015 through 2050.
  • Then, for each year during this period, they multiplied the number of gallons consumed times the price increase per gallon.
  • Bond and Hutchison note that the NBCC study’s fuel-price estimates take into account the relevant Waxman-Markey cost-containment provision, under which refiners get 2.25% of all emission allowances free-of-charge during 2014 to 2026.
  • Finally, Bond and Hutchison added up the increased annual fuel costs from 2015 through 2050.

Here are some of the results:

  • In 2020, Waxman-Markey will impose $43.6 billion in additional fuel costs on the American people. This will rise to $78.1 billion in 2030, $128.2 billion in 2040, and $215.8 billion in 2050.
  • Cumulatively, Waxman-Markey will impose $3.6 trillion dollars in additional total fuel costs on the United States.
  • In 2020, Waxman-Markey will increase each gallon of gasoline purchased by 24¢. With Americans expected to consume 122 bilion gallons of gasoline in that year, Waxman-Markey will impose $27.5 billion in additional gasoline costs.
  • In 2030, with Waxman-Markey forcing gasoline 38¢ higher per gallon, Americans will pay $42.3 billion more for gasoline.
  • Waxman-Markey will force the price of each of the 83 billion gallons of diesel fuel consumed by Americans in 2020 higher by 17¢ and $12.9 billion in total. By 2030, Waxman-Markey will force diesel 28¢ higher per gallon, totaling $28.3 billion.
  • In 2020, Waxman-Markey will make jet fuel 11¢ more expensive per gallon. Americans will consume 34 billion gallons of jet fuel in their air travel, imposing $3.2 billion in additinal jet fuel costs. This figure rises to an additional $7 billion in 2030.
  • In 2020, each farmer in the Northeast on average will pay $630 in additional fuel costs. Farmers in the South will pay an additional $966 on average, and farmers in the Midwest an additional $1,213 on average.
  • In 2020, the average  owner of a diesel-powered tractor-trailor will pay an additional $1,728 for fuel.

To wrap up, Bond and Hutchison make a significant contribution to the debate by clarifying the consumer impacts of cap-and-trade legislation.

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