The economic cost of climate change legislation

April 23, 2009

 Diana Furchtgott-Roth– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.  The views expressed are her own. —

Chairman Henry Waxman of the House Energy and Commerce Committee announced yesterday that his American Clean Energy and Security Act of 2009 “will create millions of jobs, revive our economy, and secure our energy independence.”

The 648-page bill, co-sponsored by Waxman and fellow Democrat Edward Markey, Chairman of the House Energy and Environment Subcommittee, has been the subject of four days of committee hearings this week.  It would set new limits for greenhouse gas emissions, and prescribe radically new standards for energy production and use.

The most surprising word in the 648-page bill is one that isn’t there, not even once.  That word is “nuclear.” To discuss clean energy and security without mentioning increased development of nuclear energy, now powering 20 percent of America’s electricity with no greenhouse gas emissions, shows that Chairmen Waxman and Markey are not taking the issue seriously. They’re just trying to raise taxes on Americans and enhance the power of Congress and the agencies it oversees.

Over 100 pages in the bill are spent on measures to reduce greenhouse gases.  The bill requires greenhouse gas emissions in 2012 to be no more than 97 percent of 2005 emissions, 58 percent in 2030 and 17 percent in 2050.  This last target, four decades into the future, is incompatible with our present standard of living—and illustrates the arrogance of politicians who think that they can micro-manage the economy far beyond anyone’s capacity to foresee events.

The mechanism for this is a “cap-and-trade” program, proposed by President Obama in his budget, under which allowances—the number and price as yet unspecified—to emit greenhouse gases would be issued by the Environmental Protection Agency.  If a firm’s emissions exceeded its allowance, or cap, it would have to purchase more allowances, either from the government or from other firms.

As allowed emissions decline over time, firms would have to buy more allowances, driving up costs that inevitably would be paid to consumers.  The Obama March Budget forecast that revenues of $646 billion over eight years would be collected from cap-and-trade.

Representative Joe Barton of Texas, ranking Republican on the Energy and Commerce Committee, offered his version of candor at yesterday’s hearing.  “Ladies and gentlemen, if you like the idea of reducing your carbon footprint to the size that this legislation proposes, you can test drive these carbon emissions levels by living in Nigeria,” he said.

Cap-and-trade is only one part of the bill that would drive up prices.  Consider energy production.  The bill would require doubling in three years of the share of electric utility output that comes from renewable sources—wind, solar, geothermal, biomass—from three percent now to six percent in 2012.  In a further leap of central-planning arrogance, the bill would raise that standard in stages to 25 percent in 2025.

Sounds good? Maybe, but the technology to do it doesn’t exist. Nor do transmission lines to deliver wind energy from where it is likely to be produced,  in the central states, to the population centers on the coasts, where it would be consumed.

Solar energy might be produced in the southwestern desert and California, yet exporting it to Rhode Island and foggy Washington State is practically impossible.  The bill could address this problem by giving the Federal Energy Regulatory Commission additional authority to site transmission lines, yet it does not do so.

Or, take energy efficiency. If people don’t conserve energy voluntarily, the bill would require them to do so.  Existing federal energy efficiency standards for commercial and residential buildings would rise by 30 percent until 2016 for new buildings, and 50 percent thereafter. EPA would set by next year new emissions standards for cars, trucks, trains, and aircraft. Electricity distributors would be required to achieve energy savings beginning with one percent in 2012 and reaching 15 percent in 2020.

If this bill would create millions of jobs and revive our economy, why not make the standards tougher and create even more jobs?

With the global economy in the depths of the worst recession since the Great Depression, according to the International Monetary Fund, now is not the time to raise the cost of energy and consumer goods.  Chairmen Waxman and Markey should reconsider.

56 comments

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This sounds like the old Soviet 5 Year Plans of old:”doubling in three years of the share of electric utility output that comes from renewable sources—wind, solar, geothermal, biomass—from three percent now to six percent in 2012. In a further leap of central-planning arrogance, the bill would raise that standard in stages to 25 percent in 2025.”This can only believed with a giant leap of faith.

Posted by John | Report as abusive

Dear Mdme Diana,2009 is a decisive year for the future of the climate change regime. The US is aiming to take the lead, herefore the rest of the world is willing to witness that. A leadership manifested with concrete actions not with words. Many countries in Europe have adopted measures to reduce their GHG emissions and did not complain, their populations have faced increase in energy bills and have started to modify their behaviour, to learn more and to be proactive and save energy o use it efficiently ¿why can not US population do that?

I agree with your opinion about the expensive effects this proposal would have on our citizens who are already in economic hardship. I hope the bill fails.

Posted by Sunny | Report as abusive

The proposed legislation sponsored by Messrs. Waxman and Markey is the equivalent of an act of economic self mutilation. Inebriated with power and a sense of personal infallibility, these folks do not care to bring our current economic distress to the limit. Our only hope at this time is to enact congressional term limits to bring such grandiose thinking, disregarding the consequences for our grand children, to a halt.

Climate Change is not the most dangerous threat to mankind, it is the American citizen.Bankrupt, overweight and dirty-fuelled, the american citizens consumption of resources is destroying the planet. This is a bigger threat to the world than any genocidal dictator or mass-murderer.The Republican on teh E&C committee equates reducing emissions to living in Nigeria. Now, the habits of the American citizen emits twice as much carbon as a European. Europe is not a 3rd world region, and can reduce emissions much greater, yet still manages to be half of what America emits.People think that global increase in population in the developing world is the root cause of climate change – the world has too many people to support it. Yet, if the poorest half of the world’s population were to be wiped out, the rest would still have to reduce emissions by 80% by 2050 to avert climate change disasters. This is a rich-world problem and needs changes in the rich-world to solve it. America is the biggest part of this.Through mis-informed BS, Ms. Diana manages to cloud the ability of America to change in order that the world may still survive. The technologies do exist, the will does not.She is right about one thing though, nuclear may be the answer to these issues. Not in energy production, but in terms of a holocaust of the east coast, and middle america in order to rid the world of this black carbon tumour.Diana

Posted by PO | Report as abusive

As foreigner with interest in US energy policy, I would recommend to the editor of this article to read the Stern Report, i.e. the cost of not-acting. Sure, the short term costs would be low but your children and their children will have to pay. You should start understanding that climate change is an opportunity for the whole industry to become competitive in a sustainable way. Your country has parts of the infrastructure already in place and accomodates the companies that can deliver ‘green’ products to the whole world. Comparisons with Nigeria are nonsense but if you miss this opportunity, your distant future might look similar….

Posted by Max | Report as abusive

Why is it that no one considers the cost of inaction? What will the cost be to nations receiving the influx of hundreds of millions of refugees when their lands are under the seas or their rivers and wells dry up? How many armed conflicts will arise when nations close their borders to some of these refugees? What will that cost be?As arable land is consumed by flood or soil erosion, we will all bear the higher cost of food in short supply. Rain is already diminishing throughout the southern U.S. to the point of drought, and increasing in the midwest to the point of catastrophic floods. That pain and suffering will be in the pockets of some and famine for the rest.The philosophy of “It’s the economy stupid” is beginning to sound “stupid ” itself. President Obama is right about one thing. There is work to be done and too many people not working who could be doing it. The economic Wonks or going to have to accept that economic growth models of the past were unsustainable and the free market is ill suited for directing humanity where logic and reason should prevail.

Posted by Anubis | Report as abusive

No serious proposal for energy in the US can include nuclear because it isn’t a sustainable power option. Until we have something to do with the spent fuel rods, it wont be sustainable.If we can’t refine the fuel rods, and we don’t have anywhere safe to get rid of them, then we simply have to ignore nuclear until those problems are solved.The rest of the article, which rides the hype of “environment must bow to the economy” simply needs to be rethought. We are entering the age of consequences, regardless of the hyperbole and strawmen flung out by the far right wing.Likening reduction of emissions to living in Nigeria? How can this even be something that is mentioned in a serious article.If you want to have a mature discussion on the effects that reducing carbon usage and developing renewable energy will be, then go ahead. Just don’t rely on patently stupid arguments like saying that we would have to reduce our standard of living to that in Nigeria.

Posted by Travis | Report as abusive

I find forcing our reliance on fossil fuel to go down through legislation is a far better alternative then depleting, raping, and polluting our earths resources.The cost in the long run is cheaper to knock off unsustainable sources of energy rather then hoping our children will figure out how to clean up our present mess.If that means everyone has to suffer a little more, so what at least people can stick around and suffer longer then if we turn our only planet into a toxic wasteland.

Posted by Chris | Report as abusive

Below is a comment I made on one of Reuters Great Debate articles regarding the CO2 issues. The numbers are from creditable web sites. My point in the first paragraph is that there is a large disparity regarding how much is attributable to humans and within that there is a large disparity regarding how much to attribute to which industry. Given that here the “scientists” guess how much is from what to total 796.4GTs per year of CO2. I am not sure if the 796.4 is the starting number andthey know this one is pretty accurate and try to fit in their best guesses or what. All I do know it that it is pretty standard to attribute a small percentage for human activity. This is around 3%. That is total human impact. If we were to stop all of our CO2 output toinclude farting would it really have any significant effect?Mount St. Helens Is State’s Top PolluterPosted on: Thursday, 2 December 2004, 08:40 CSTNOT taking into consideration eruptions, one active volcano produces more green house gases than any state in the Union. According the Smithsonian Institute the combined days of eruptive episodes has increased seven fold within the last 100 years. That is eruptions which belches out huge amounts of green house gases. And whatI think is really funny is Global Warming propaganda outthere states because the warming can be correlated to the increase in volcanic activity then the increase in volcanic is due to the global warming that man has caused. You have to really sit their and do a double take. They will not in any way consider that some other force may be at work but humanity. One even tries to get you to believe that the increase in activity is do to ice melting which started after the increase in volcanicactivity began. Humanity’s impact can only change the amount of CO2 by no more than 3% yet we are the cause? I am not convinced!In the past 10 years our coal fired plants have improved CO2 emissions considerably from 200 million tons to 27 million tons per year. Where are the at-a-boys for dropping Coal fired power plant emissions by 86.5%?My comment:Of the man made CO2 about 14% to 32% is from transportation depending on whose numbers you want to use. No one really knows how much is man made verses nature made much less how much from what industry. Please keep in mind the following: _Consumption of vegetation by animals & microbes accounts for about 220 gigatonnes of CO2 per year. Respiration by vegetation emits around 220 Gt. The ocean releases about 330 Gt. Incontrast, human emissions are only around 26.4 Gt per year._ So, transportation is responsible for about 3.7 to 8.4 Gt per year. The only way to make this be more than a drop in the bucket is if we completely shift from an oil based transportation industry to a total electrictransportation industry. And, the problem with that is no one in Congress is looking at this kind of scenario. There are ways to do this. Here is a 1996 Discover article on a flywheel engine.http://www.mega.nu:8080/ampp/bitt erly.ht mlBut, the US auto industry and Congress has been controlled by big oil for so long the idea of such devices is avoided like the plague.If you were to couple affordable LED lighting for home and industry and advances in both portable solar energy and vehicle energy recovery, the increase to the power grids would be minimized while providing the populace with very affordable transportation and a reduction in the CO2 output.Of course with the increase in volcanism over the last 100 years this drop in CO2 is not significant. But we do not have to tell anybody that fact. I am all for cleaning up our pollution. I wish we would pay asmuch attention to water and land pollution as we do CO2. We pollute our land and water with so many hideous substances that nature cannot handle like it can handle CO2. I hope we don’t lose sight of these ecologicallydevastating substances just because it has become popular to jump on the global warming bandwagon. There are more dangers than just global warming and I am not sure I buy all the doom and gloom spread by the Global Warming industries.Anubus, you asked what the cost of doing nothing is. Well pollution is pollution. We should still be good custodians of the world. There are ways this can actually be a savings to the consumer but very big money isn’t keen on heading in that direction. The US is an energy hog. If we would just remove incandescent bulbs from the market we would save huge amounts of energy per year. Simple and doable but why hasn’t it been done. LED lighting uses so little power per lumen that if we were to convert our homes and industry to LED we would cut our power consumption by 1/3. But this means that these plants can’t sell as much meaning their income will go down unless they raise the rates for a gigawatt of power. In other words the cheapest (for the consumer) way for this industry to run is at full capacity. There has to be a paradigm shift in how we pay for energy. How can the powers that be expect the consumer to be penalized for conserving energy. There are ways but big business isn’t looking in that direction. Neither are the Global Warming industries.

Posted by B.Free | Report as abusive

Once again, you are changing the argument into purely economic terms. Certainly any switch to alternative energy is going to cost money. Is the status quo ‘cheaper’? Would a world 30 years from now, with submerged seaboards and an end to peak oil be ‘cheaper’? Imagine a hurricane like Katrina every couple of years due to warmer ocean waters. Now that’s a small bill to pay, correct? But since the climate argument seems to be over (Ms. Furchtgott-Roth doesn’t argue those points), she seems to feel that nuclear can somehow ‘solve’ the problem. But even if we were to go full-bore on nuclear (driving up the price of fuel material), we still need to replace the 100+ reactors that are nearly 30 years old, and then have to deal with the policial realities of handling the nuclear waste. Alternative energy isn’t relegated to solar and wind, either…I’m sure the 0 emmission hydroelectric Washington State uses more than covers their fewer solar days, and Rhode Island’s wind and wave power would suffice for their needs. But the salient point remains…we have an environmental energy problem. We need to fix it. We should do it in a cost effective manner. So, Ms. Furchtgott-Roth, knowing it must be fixed, what’s your fix?

Posted by Mike | Report as abusive

Why is Diana only calling for a nuclear “holocaust” against the US East Coast and Middle America? Why not the West Coast and Hawaii as well? After all, they’re also part of the “Black Carbon Tumor”. While she’s at it, why not just exterminate all industrialized humanity, leaving a scattered population of nomadic hunter-gatherers overseen by a select few treehugging whackos like herself?

Posted by Jim | Report as abusive

“Solar photovoltaic panels placed on just seven percent of the roof area currently covered by cities and residences could generate all of America’s electricity needs, significantly mitigating the effects of global warming.” — National Renewable Energy Lab studyWe have the need, the technology, the business case, and we have the public will to switch to clean and renewable energy sources today.Conversion costs off of fossil fuels and the benefits are all too apparent to those who see the big cost picture and can connect the dots of environmental and security consequences resulting from no or inadequate half measures towards carbon emissions mitigation.A honest perspective on the business-as-usual consequences of our historic energy policies source options is something the vested energy interests within the Republican party have consistently failed to consider, or demonstrate when the GOP leads.

Posted by Clean Tech | Report as abusive

Jim,the topic of the article is the economic cost of climate change legislation. a holocaust of the main sources currently responsible for carbon emissions would seem the most ‘economically cost-effective’ option to me given people think that investing in clean energy is too costly.Hawaii and west coast, and certainly not the rest of the world, don’t fit in with this criteria of world’s biggest polluters. California is basically an independent nation in these matters anyway.This criteria doesn’t discriminate against nationality or religion – just your life choice. Why should the rest of the world have to suffer to support the overweight, morally and financially bankrupt lifestyles of the world’s worst polluters? The rest of the world, including other industrial countries with perfectly adequate standards of living, can go back to enjoying the lords bounty without destroying it.Diana

Posted by PO | Report as abusive

¿Who defined that USA is the only in charge of the climate change legislation? This change is a worldwide concern.USA and some countries of Europe burned huge Terawatts of energy per hour, during 24 hours per day, during 365 days per year.Now is the time for pay to the world this crazy economical system.Each of your habitants must reduce the use of energy via laws that increase the cost of the energy in accordance with the range of consumption, more energy, more pay, but establishing as base line the standard consumption of a native habitant in a development country, as Colombia, living in one of the most rich natural regions, the few last cleaner system for the sustainability of the nature, responsibility of all in the land.

Posted by Roberto Navarro | Report as abusive

Unforunately, it seems Obama and the US government have no leverage Internationally and can do nothing but kiss and make-up with the rest of the world for the last 8 years. If we are going to get serious about our economy, and our environment, then we’re going to need much more courage and leadership from Washington. We need to stand up and claim our world leadership and call the bluff of every other world “leader” resisting their own responsibilties to their region, and to humankind.