EnergyCitizens.org claims gas will cost $4 a gallon under a cap-and-trade plan

In a full-page ad in the Sept. 30, 2009, edition of the Washington Post , was this eye-catching claim about gas prices:

"$4 GAS - Another unfortunate truth about the House's climate bill," said the ad from EnergyCitizens.org . "As Congress considers new climate legislation, Americans aren't getting the whole truth. A recent study found the House-passed bill could lead to $4 per-gallon gasoline. America is in the middle of a harsh recession. Think about the impact of $4 gas."

We've heard a lot about the cap-and-trade plan — that it will increase the cost of energy and that it will eliminate jobs — but it's been a while since we put claims about the price of gas to the Truth-O-Meter.

The concept of cap-and-trade is relatively easy to understand. A cap is put on greenhouse gas emissions, and firms are required to buy credits, either from the government or from other companies, to continue polluting. Iterations of a cap-and-trade plan have been introduced in Congress previously, but the most recent legislation, written by Democrats Henry Waxman of California and Ed Markey of Massachusetts, has been passed by the House of Representatives. Their bill aims to lower carbon pollution by 17 percent by 2020 and 83 percent by 2050. Under their plan, most pollution permits initially would be given out free. But eventually, companies would have to buy those permits from the government.

Opponents of cap-and-trade argue that forcing industry to buy pollution credits will ultimately harm consumers and business. Firms will have no choice but to pass on the cost of buying those permits.

And that's where the argument from EnergyCitizens.org comes into play. The group, a coalition of business organizations, antitax groups, transportation companies, and Washington heavy hitters such as the American Petroleum Institute and the American Farm Bureau Federation, says those higher prices will hit consumers in the form of higher gas prices.

The ad cites a Heritage Foundation study of the bill published on June 16. The conservative think tank, which has been critical of the Waxman-Markey bill, contends higher energy prices "will spread throughout the economy as producers everywhere try to cover their higher production costs by raising their product prices. ... Even after adjusting for inflation, gasoline prices will rise 58 percent over the 2035 baseline price."

We checked with the Heritage Foundation to find out if EnergyCitizens.org was correctly interpreting Heritage's study, and were told that the group was. Heritage also pointed us to another study the think tank did that looked at gas prices per state. Heritage assumes that under Waxman-Markey, gas will be at a minimum $3 a gallon in 2035, depending on where you live. A 58 percent price increase as a result of cap-and-trade would put the cost of a gallon of gasoline at more that $4.

So, based on Heritage's data and assumptions, EnergyCitizens.org is in the ballpark. However, the group leaves out an important detail in its ad: These predictions are for 2035, 26 years from now when, presumably, our economic landscape will be very different. EnergyCitizens.org plays on people's anxiety about the recession by portraying these prices as something that would take effect immediately.

To get more perspective, we looked at other estimates. For comparison, keep in mind that the current national average is $2.60 for unleaded regular.

The Energy Information Administration, a branch of the Energy Department, published an analysis of the bill on Aug. 4, 2009, which predicts gas price increases will be relatively small compared to increases in the electricity sector, in part because emissions reductions from the fossil-fuel sector will only account for 12 to 20 percent of overall reductions. If the bill is enacted, gas prices will only be about 20 cents more per gallon in 2020 and 35 cents more in 2030, the report predicts.

Another analysis by the Environmental Protection Agency predicts impacts on future gas prices would be minimal under the Waxman-Markey bill. Specifically, prices would go up $0.13 in 2015, $0.25 in 2030, and $0.69 in 2050, according to the June 23 report.

Clearly, there's a difference of opinion on how much the price of gas will change as the result of cap-and-trade. For the most part, those differences have to do with what kind of assumptions are made about nonfossil fuels, such as nuclear and wind power. The EPA, for example, assumes that cleaner technologies and renewable energy will replace fossil fuel more quickly, which would translate to lower costs to consumers. Heritage takes an austere approach, assuming that traditional energy sources would be scaled back to meet new emissions standards, but would not be immediately replaced by new technology or renewable fuels. As a result, fossil fuel prices will go up and continue to rise.

Another point to put this all in perspective: Gas prices fluctuate dramatically. In January 2009, a gallon of gas cost about a $1.80 a gallon. This week, gas costs $2.60 — about a $1.20 less than it was a year ago. So predicting how much gas will cost next week — let alone in 2035 — is an imperfect science.

Based on the estimates, it's probably a safe bet that the price of gasoline will ultimately increase as a result of cap-and-trade. And the estimates vary based on reasonable disagreements about methodology. But Energycitizens.org is guilty of a significant exaggeration because the ad strongly implies the price hike would happen very soon. It fails to mention that $4-a-gallon gasoline wouldn't be the norm until 2035 — if it ever is. The group also leaves out other important studies that predict smaller increases. For a serious case of cherry-picking, we rate the ad Barely True.