Cap-and-trade programs kill manufacturing jobs, according to new research published by the National Bureau of Economic Research.
The study says that manufacturing jobs were reduced by 1.3 percent in affected areas after the EPA implemented a cap-and-trade program in 20 eastern states in the 2000s. Cap-and-trade cost over 110,000 jobs total in the affected states. Manufacturers in the top quartile of energy-users cut jobs by 3.9 percent more than low energy-users in the bottom quartile.
The job cuts primarily affected young workers, while newly hired workers saw their earnings fall. Rather than firing workers, most of the employment reductions came from reduced hiring — which is why older workers fared better than new ones.
There are several possible causes for the manufacturing job losses caused by cap-and-trade. Many firms were affected by higher energy costs. But large manufacturing plants that produce their own energy were directly regulated under the cap-and-trade program. “Direct regulation may have led existing firms to decrease employment and discouraged new firms from locating in the regulated region,” the study speculated.
The EPA implemented cap-and-trade in 20 states under the NOx Budget Trading Program starting in 2003.
The study acknowledged that cap-and-trade programs are preferable to command-and-control style environmental regulations. While the program added “substantial costs to energy producers,” the study acknowledged emissions from power plants were “dramatically decreased.”
The paper was authored by Mark Curtis, an assistant professor of economics at Wake Forest University, and published by the NBER Working Paper Series.
In addition to the regional scheme in the east, California implemented its own cap-and-trade program in 2012. Nine northeastern states established a cap-and-trade program under the Regional Greenhouse Gas Initiative in 2005.
Washington Gov. Jay Inslee, a Democrat, proposed a state cap-and-trade program in December 2014 that would cost the economy $1 billion a year. Inslee’s own advisers say the program would raise fuel costs by 7 to 15 percent by 2035, compared to baseline estimates.
