Cap and Trade

Cap and Trade

By Rep. Bob Lake


There’s little doubt that the Waxman-Markey cap and trade bill will have a negative impact on our economy. Economists on both sides of the issue agree that it will, the question they’re debating is by what degree. It’s amazing to me that in one of the economically-weakest points in our country’s history, Congress would be contemplating passing legislation that all agree would make things worse.

The experts are projecting losses to our GDP and job growth and at the same time higher prices for consumers for gasoline, electricity, and consumer goods. The double-whammy of declines in jobs and higher prices for consumers can only serve to make our economic situation worse and slow our recovery.

What are the impacts we can expect here in Montana? Considering that our second-biggest industry in much of the state is energy-production and our largest industry, agriculture, depends on significant energy inputs, it could be disastrous.

As I’ve been watching this proposals’ progress, which will now be considered by the US Senate, one of the things I’ve been contemplating is what impact it could have on our state tax revenues. Most people recognize that in recent years we’ve been in a relatively rosy budgetary situation, with at one point having a 1.4 billion budget surplus.

A large factor in our growth has been a healthy influx of tax revenues from the increased oil and gas activity in eastern Montana. We’ve had increases directly from the oil and gas severance taxes and property taxes but also indirectly in the form of income taxes from all the new, high-paying jobs in the oil fields of Eastern Montana. Our state also has significant revenues from coal production (though not nearly what the state of Wyoming realizes).

I fear that a lot of those tax revenues will dry up in very short order under a cap and trade scenario.

A bigger challenge we face is that the influx of tax revenue we’ve had in recent years has fueled an unprecedented growth in state government. The new funding that has been added to state government during the good times now become ongoing obligations we somehow need to fund in future years. That leaves two options: increase taxes to offset a reduction in energy-related taxes or start cutting government services.

If we increase taxes, we’re turning that double-whammy (reduced job growth and higher consumer prices) into a triple-whammy by adding a potential increased tax burden on homeowners or income taxpayers. If we reduce services the needy will suffer and the triple turns into a quad.

As for agriculture our #1 industry, cap and trade is going to hit small producers (which make up the vast majority of Montana operators) inordinately hard. Most ag businesses have very little opportunity to pass on their increased energy input costs on to consumers. Cap and trade will make fuel, fertilizer, and feed costs all increase at the mercy of the market. Inevitably, we will all be forced to pay more for our food because of these higher costs.

We all know the thin margins most ag operations already operate on. Cap and trade could be the proverbial straw that breaks the camels’ back for a lot of family farms and ranches.

Don’t get me wrong, there are benefit’s to reducing our nation’s carbon emissions. Reducing those emissions comes with a cost, and right now Montana is in a position to be hit harder than most other states based on the current legislation already passed by the House and on its way to the Senate.

There are other options available. I urge Senator Baucus and Senator Tester to work to develop a better bill that will actually improve conditions in Montana. The Waxman-Markey bill certainly does not.