Is ‘Cap-And-Trade’ a Tax on Rural?

Rural people use more energy. So when limits are placed on carbon emissions, will there be a redistribution of money from the center of the country to the urban coasts?

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Bruce Bailey says the farmers and other rural residents who buy power from his relatively small electrical cooperative in Iowa could be in for a big surprise if President Barack Obama’s cap-and-trade plan to reduce greenhouse gas emissions becomes the law of the land.

In fact, Bailey, who heads the Glidden Rural Electric Cooperative, and other REC sources say that the nation’s countryside, and reaches of America more dependent on coal, could be disproportionately affected by the environmentally minded emissions program contained in the Obama budget plan now before Congress.

“I believe it will hit local people,” Bailey said from his office in Glidden, Iowa, 60 miles west of Ames.

Bailey said rural cooperatives like his – which serves about 1,700 accounts – have fewer customers per mile of line and can’t spread out costs as widely as investor-owned utilities. What’s more, says Ken Kuyper, general manager of Corn Belt Power Cooperative in Humboldt, Iowa, there is a fact of life on the farm: “Rural residents just inherently tend to use more energy per capita.”

This is borne out by a Wall Street Journal comparison showing rural states like Montana and Iowa leading in per capita CO2 emissions with coastal, largely urban states such as Connecticut, Washington and Massachusetts in the bottom 10 states on that measure, based on 2005 data from the World Resources Institute. (See map above.)

Douglass Burns
Headquarters of the Glidden (Iowa) Rural Electric Cooperative.
Obama didn’t just roll the cap-and-trade plan out after his election. He said in his campaign (which involved nearly a year of practical part-time residency in Iowa) that he would cap greenhouse emissions and create what amounts to a carbon trading market. The plan envisions reducing greenhouse gases 83 percent (from 2005 levels) by 2050.

But will the burden by borne fairly – or will rural residents carry more of the load?

Rural areas more dependent on coal would be disadvantaged, says Glenn English, National Rural Electric Cooperative Association CEO and a former Democratic congressman from Oklahoma.  “It is a clear transfer of the middle part of the country’s wealth to the two coasts,” Michael G. Morris, CEO of American Electric Power (AEP), tells Business Week

The Wall Street Journal blasts the plan as geographically biased against the Midwest and South and rural areas of the nation. “The greatest inequities are geographic and would be imposed on the parts of the U.S. that rely most on manufacturing or fossil fuels — particularly coal, which generates most power in the Midwest, Southern and Plains states,” The Journal opines. “It’s no coincidence that the liberals most invested in cap and trade — Barbara Boxer, Henry Waxman, Ed Markey — come from California or the Northeast.” 

BusinessWeek reports that gasoline would go up 12 cents a gallon and electricity 7 percent nationally under cap-and-trade. English, with the National Rural Electric Coop Association, says the electrical rate hike will be closer to 15 percent – and Iowa’s Bailey thinks that may be far too low of an estimate. In an op-ed piece he sent to Iowa media, Bailey is warning customers that cap-and-trade could double or triple their rates between implementation and 2050.

One of the Midwest’s leading voices on economics, Omaha’s Warren Buffett, the CEO of Berkshire Hathaway and an Obama supporter, has spoken in critical terms of the cap-and-trade plan, saying it would amount to a regressive tax. 

The Obama administration expects its carbon plan to raise about $700 billion by 2019. Administration officials say about 80 percent of that revenue will flow back to consumers in tax credits intended to offset increases in energy costs.

Don’t count your money until the check’s in the mail, says Bailey. “Will lawmakers be able to resist diverting money to causes that have little to do with addressing climate change, such as paying the debt on the hundreds of billions of dollars spent last fall and this winter on bailing out businesses on the verge of collapse?” he asks.

Because carbon emissions will be in what amounts to a commodity market, advocates of cap-and-trade say its mere presence will encourage innovations to reduce greenhouse gases at their source and promote more alternative energy investments by utilities and businesses.

Others say the Wall Street Journal and detractors are just cherry picking numbers to defend long-standing carbon-standing economies. Writing in The Washington Independent, Aaron Wiener says the tax credits stemming from the emissions trading revenue ($400 per individual and $800 per family) actually would save many rural people money.

“The poorest 40 percent of Americans would gain from this plan (including a substantial gain by the poorest 20 percent), the richest 40 percent would lose and the middle 20 percent would break about even,” Wiener writes. 

 

 

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