Guess Who'll Lie to You About New Energy Taxes

See the poster above? This is how the American Petroleum Institute scares people about the prospect of climate change legislation. The message is that no matter who you are (a dude who works with huge wrenches, a woman who uses cardboard boxes, a guy in a shirt and tie) you will pick up the tab if we make things harder on the oil industry.The economic idea behind this rhetoric is that when it gets more expensive to produce something, those additional costs are "passed on to consumers."But, as Matt Yglesias points out, this is a dramatic (and self-serving) oversimplification:
...if it were true that producers could just "pass the costs on" to consumers, this would raise the question of (a) why the new tax or regulatory burden bothers producers so much, and (b) why they don't just raise prices now. The answer, of course, is that the current market price maximizes profits. If you raise prices, you'll lose customers and make less money. That exact same logic applies if new taxes or fees come into play. What actually happens is a mix of higher prices, lower profit margins, and reduced consumption.
How does that mix actually work out for consumers? Brad Johnson, drawing on a 2007 MIT analysis, says that "even a very strong price on carbon only marginally affects consumer gas prices." And we all benefit from a healthier planet.