In an effort to better understand the broad consequences of the Kerry-Lieberman American Power Act on the U.S. economy, the Institute for Energy Research commissioned Chamberlain Economics, L.L.C to perform an economic and distributional analysis of cap-and-trade portion of the proposal.

The following represent some of the study’s key findings:

• The American Power Act would reduce U.S. employment by roughly 522,000 jobs in 2015, rising to over 5.1 million jobs by 2050.
• Households would face a gross annual burden of $125.9 billion per year or $1,042 per household, with costs disproportionately borne by low-income households.
• On a net basis, the top income quintile will benefit financially, redistributing to these households roughly $12.3 billion per year from the bottom 80 percent of earners.
• Households over age 75 bear the largest burden at 2.3 percent of income, followed by households aged 65-74 and under age 25 at 2.1 percent. By contrast, the nation’s highest-earning households between age 45 and 54 years would bear the smallest percentage burden of just 1.5 percent.
• Contrary to the legislation’s stated goal of reducing price volatility by excluding petroleum refiners from quarterly auctions, the Kerry-Lieberman bill is likely to significantly increase allowance price volatility from quarter to quarter, compared to an ordinary auction in which all covered industries bid for allowances.

At its core, the report examines the impacts that the American Power Act would have on the U.S. economy, the method by which emission allowances are distributed to corporations and the distributional cost of the bill on households by income, age group, region and family type. The authors also explore two specific propositions: the first, the potential for shareholders, and not consumers, to benefit from the distribution of free emission allowances; and, second, the expected consequences of the bill’s creation of a separate pool of allowances for petroleum refiners, thus adding to the price volatility of those allowances.  Both conclusions are contrary to Kerry and Lieberman’s stated intent of the legislation.

“One of the most basic criticisms of climate policy is its regressive impact on low-income households,” said Andrew Chamberlain, a co-author of the report and chief economist at Chamberlain Economics L.L.C. “The Kerry-Lieberman bill holds true to this by distributing most allowances freely to companies and government agencies for the purpose of securing political support for the bill’s passage. Aside from the distributional impact of the bill, Kerry-Lieberman suffers from serious flaws in its policy design. The bill’s exclusion of petroleum refiners from quarterly auctions—a provision designed to shield refiners from price volatility—is instead likely to have the opposite effect, increasing volatility faced by covered entities with no obvious economic or environmental benefit.”

“These numbers speak for themselves: 522,000 lost jobs in 2015, up to 5.1 million in 2050,” said Thomas J. Pyle, president of the Institute for Energy Research. “Promoting a policy that guarantees job loss and disproportionately impacts older Americans and those earning the least will have devastating consequences. Senators Graham, Lieberman and Kerry stated from the very beginning that their goal was to bring a coalition of big oil executives, Wall Street titans and environmental groups to the table – and that’s exactly what they did. Unfortunately, as this analysis shows, the one person that wasn’t at the table ends up footing the bill: the American consumer.”

To view the entire analysis, click here.

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There are other effects too.  The government’s handling of the credit crunch seems to have scared investors headlong into commodities such as gold, silver, and even oil.  So oil prices are rising because of a real demand by investors, as well as the declining exchange value of the dollar against other currencies.  This is a one-two punch from the feds to consumers.

After weeks and weeks on the decline, oil prices shot up more than $15 per barrel today after the markets pondered the weekend news of the government’s bailout plans.  At the same time, the euro rose more than 2.5 percent against the dollar, and the S&P 500 fell more than 3 percent.  It seems clear that investors are running from sophisticated assets and are returning to the basics: commodities.  In times of uncertainty, investors can always rely on an ounce of gold, or a barrel of oil.

According to one respected analyst:

“There is no logical reason as to what we are seeing now,” Stephen Schord, editor of The Schork Report told CNBC. “My biggest fear now is that we’re right back to where we were last September.”

“The Fed is signaling that they’re going to make money cheap again, cheap money is going to start piling into commodities—this is my biggest fear and it looks like this fear is coming into reality right now. We could be back on the road to what could be $150 crude oil, regardless of the supply-demand fundamentals.”

In light of the increasing cost of imported oil, and the growing burden on the U.S. Treasury, the case for opening up federal lands to oil and natural gas drilling becomes all the more compelling.  Additional supplies of domestic energy through new leasing and development would lift the U.S. dollar and yield billions in additional state and federal revenues.