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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I think one should distinguish between standard of living and cost of energy usage. Yes this legislation will increase the cost of energy, that’s the point of it. To maintain our standard of living we must live in a manner that consumes less energy or generates energy in a carbon free manner.And really, what are the alternatives, continuing along our current path will certainly affect our standard of living. The changes cause by global warming will be tremendously costly. Just ask the insurance companies who pay to clean up the increasing number of once in a hundred year storms.

Posted by MIchael | Report as abusive

Thin-film solar with solar concentrators and next generation mini wind-based power generators have the potential to replace 100% of the energy needs of a home and about 30% energy needs of industries. Nuclear option is not feasible in this regard.If job creation is the real issue, then go about -a) first instituting equal grounds in terms of a fair Value-Aadded-Tax of 15 to 17.5% on all foreign imports into U.S to begin withb) require all trading partner countries abide by an international entity to adjust currency values fairly andc) administor fair and equal regulations on ecological-friendly practicesShort of the above, current free-trade practices are bound to deplete jobs for current educated youth U.S population, polarize the country into haves and have-nots, that is the hallmark of a developing country.GOD help US.Chandra

Posted by Chandra Moturu | Report as abusive

Potential, next generation, tarrifs, class envy, government power, taxes. That will save the world from US! Right?

Posted by David | Report as abusive

The government charging people for polluting! How outrageous! Or is it….?Isn’t that what we did 40 years ago with the Clean Water Act to make sure our rivers and streams didn’t turn into industrial waste dumps?I know I’m pretty thankful that I can turn on the tap and the water isn’t brown and cancer-causing. I’m also pretty thankful that my ancestors cared enough to think about preserving the planet to vote for that legislation.Business needs incentive to not pollute. The government needs to provide that incentive, because if they don’t, much of the coastline will be underwater in a few decades, and it will be too late.

Posted by Mark | Report as abusive

this article is full of opinionated misinformation.the most important part being :”Sounds good? Maybe, but the technology to do it doesn’t exist”This is obviously not the case many other countries better access to fossil fuels or less natural renewable energy resources have by far exceeded those figures.the technology is there, has been there for some time and is improving at an astounding rate.all that is missing is the will to make the change.

Posted by eoin | Report as abusive

Chandra Moturu, above, says “Thin-film solar with solar concentrators and next generation mini wind-based power generators have the potential to replace 100% of the energy needs of a home and about 30% energy needs of industries. Nuclear option is not feasible in this regard.”Oh? As I type this, it is raining and the wind is calm; this has been the case for the last 24 hours. Where I live, the electricity grid does not have enough capacity to import any more electricity of any kind. How, might I be so bold to enquire, am I to get any of my energy needs today, now, from either wind or solar? I know. Stupid question.Fortunately, however, where I live 40% of my electricity does come from nuclear power. I do wish it were more. If (and I doubt it will ever happen) I could get all my electricity that way, and someone squelched the NIMBYs who oppose additional power lines in this state, I would cheerfully heat my house and barns with the stuff (no greenhouse gasses) and use an all electric car (say, for instance, a Chevy Volt — hurrah for General Motors!).But no… sigh…

Posted by Ian | Report as abusive

I cannot find anything new in this article; the same old rant.Talking about nuclear energy, she should inform herself of the problems derived from the U.S. approach to nuclear energy compared to that of, say France. And even in France -where nuclear policy was left in the hands of (HORROR!!!) bureaucrats that ruled on reactor design and a monopoly to operate the plants- nuclear waste was a problem that got solved by replacing “waste repository” for “temporary storage” until one may find out how to reuse it.But still, there is a more serious problem. This is the old conservative rant of “we’re going to charge consumers” with its variant that inducing energy conservation will leave the U.S. like Nigeria (hey, do you really need your SUV to go to your office? why don’t you catch the bus or ride a compact car?), or the more general that “global warming is still being debated”That reminds me of a concept in inferential statistics (hypothesis testing) Type I errors and Type II errors.Type I errors consist in rejecting a null hypothesis when the null hyp. was true.Type II errors consist in accepting a null hypothesis that should have been rejectedIf this seems too complicated, I’ll illustrate it.Null Hypothesis (H0): there is NO global warmingAlternative hypothesis (H1): There IS global warmingLet’s assume that we are in a “Type I error” situation: we reject H0 and assume that global warming is true so we spend resources in curbing emissions. It seems obvious that we can compute those costs v. the current situation of “doing nothing” in terms of lower economic growth or lower life quality although the meaning of both may be subject to debate and therefore yield to different estimates. Still, we may operate under some guise of certainty.What about a “Type II error”? Basically we accept H0 (no global warming) and do nothing when in fact we should have done something about it. But since we do not know the full extent of the costs that global warming may impose we implicitly assume that those costs are negligible or nonexistent.Case in point: DDT. We use (and abuse it) for anything from treating crops to children’s heads to get rid of bugs. Back then, we were told that DDT was safe; sadly, time proved otherwise.So, the writer wants us to get into a “type II error” situation… good!. But make sure that you reflect about the consequences… think DDT: you want some?

Posted by enronsaurus | Report as abusive

Such important issues as climate change and transition to Alternative Energy requires balanced constructive approach, free from sensationalism and political-ideological bias.It must be clearly stated, that Energy consumption cycle includes not only Generation (where most of debates concentrated), but also STORAGE, Transmission and Conversion. TRUE SCIENTIFIC/ENGINEERING solution should NOT be just focused on and limited to the first stage (which is Energy Generation), but also take into consideration other parts, in particular Energy STORAGE.Green Electricity (GEL) Initiative, topping the Google™ search list for many years, is addressing these issues and proposing the comprehensive systemic solutions, including the replacement of the Batteries with Ultracapacitors (A.K.A. Supercapacitors) in conjunction with Alternative renewable energy. See the details at: http://www.alexanderbell.us/Initiative/G EL.htm

These plans always sound good and look good on paper but i have a feeling the government will not put up enough money to finance these environmental projects over the long run and they will stay unfinished. Unless the individuals making these decisions stay in power indefinitely, i can’t see these projects being completed especially if the power shifts to another group with different priorities. i guess i am too optomistic!

Posted by jason ruiz | Report as abusive

While the pending legislation is far from perfect, the question before us is clear. Do we want to be a major producer of wind turbines and solar cells or do we want the Chinese and Germans to build them all? We need something big and long-lasting to replace our auto industry. This bill is the first step. If we don’t pass it, we fall further behind and have fewer industries that can help us pay our debts. It’s that simple.

Hi Ray, Maybe Lewis needs a new calculator!This seems like something done on a napkin over lunch – with drinks!The article is correct on the point that the technology doesn’t exist today – ethanol & biomass which greens love are a bad, sad joke.New technology will be available because people are working on it – companies are working on it. Now if the government just doesn’t help too much!!!!!!!!

Posted by russ | Report as abusive

I wonder if forcing companies to adopt environmentally friendly technology is the way to go the way it is being done right now: with unrealistic legislation, far beyond the capabilities of companies to adjust and adapt, and without considering a do-able time frame to phase out older, more polluting technology with minimum impact to productivity and profit… and employment levels.

Posted by Van Dan | Report as abusive

It is unfortunate to see once again an economist taking a short-term view. There is nothing in this article about the costs of taking no action on global warming (e.g. flooded coastlines, changes in rainfall patterns and heat waves lowering crop yields, etc.). Instead, the emphasis is only on the upfront cost of reducing pollution (a cost which is frequently exaggerated). Didn’t the global economy get into the current mess because people looked only at the short term benefits of financial transactions without taking into account the long terms consequences of too much debt, too much risk, and opaque financial instruments? If this financial crisis teaches us anything, it is that we should look at the long term affects of our actions. That starts with thinking about our planet and protecting its environment.

Posted by Dan from Canada | Report as abusive

If we don’t clean up our atmosphere, there will be no consumers, except maybe a few cockroaches (and they’re not concerned about cost.)

Posted by spud | Report as abusive

REF your “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.”Suspect same was told to the Wright brothers, “Why you two messing aabout with airplane thihgs? Any fool would know even if they do fly, there ain’t no airports built so why bother?”Amusing on how a TX, can you spell “O-I-L” political hack is designated as new “expert”. But one way or other the emissions are going to get cut, by us or ole Mom Nature as she is VERY not very partisan, she’ll warm this place up to a point where even the fools now dodging reality will notice it.. is seems ole Mom is already starting.. amazing how some “not a problem” folks rational ranks right up there with the dinosaurs about the coming conditions on this planet..But least we forgot, many pf the “ain’t a problem are those highly educated lawyers and journalists, not those ole woosey wimpy science folks.I mean these folks were English or Com majors, not that ole boring “Sciences stuff”. Gees folks, what can 99.9% of science know that our lawyers and political and their hacks do not already know, they aren’t even elected, just educated!

Posted by chuck | Report as abusive

Outstanding article Diana! The lunacy of these green initiatives concerns me greatly because government leadership (past and present) is non existent and the current proposals will economically hurt all the poor and most of the middle class. Anyone that doubts this need only look at consumer spending from early 2007 when already high energy prices began rising until 2008 when energy prices dramatically dropped. People that don’t see this correlation are simply out of touch with the poor and middle class.Think about it, people aren’t buying cars now especially the poor and middle class. This is not because they are waiting on a green alternative, it’s because they can not afford it! So what makes these congressional elitists think the poor and middle class will be able to afford a $30k hybrid or a $50k electric car? It is elitist to think it will all work simply because a few environmental zealots say so and it is elitist to claim moral superiority simply because of a faulty consensus not based in scientific fact.

Posted by Les Opp | Report as abusive

Ian above says – “Oh? As I type this, it is raining and the wind is calm; this has been the case for the last 24 hours. Where I live, the electricity grid does not have enough capacity to import any more electricity of any kind. How, might I be so bold to enquire, am I to get any of my energy needs today, now, from either wind or solar? I know. Stupid question.Fortunately, however, where I live 40% of my electricity does come from nuclear power. I do wish it were more. If (and I doubt it will ever happen) I could get all my electricity that way, and someone squelched the NIMBYs who oppose additional power lines in this state, I would cheerfully heat my house and barns with the stuff (no greenhouse gasses) and use an all electric car (say, for instance, a Chevy Volt — hurrah for General Motors!).But no… sigh…”Nuclear in terms of clean energy generation is indisputable until we start considering its limited supply and reprocessing. Solar and wind by themselves are not reliable as properly pointed by you, however, these issues can be worked around by alternative energy storage schemes.

Posted by Chandra | Report as abusive

It’s ridiculous to think that every household would have telephones or cable television. How on earth would we get lines to everyone?! And people just wouldn’t stand for having unsightly telephone lines strung across streets and houses. Won’t ever happen. Oh, wait. Sorry I forgot I lived in the United States of America. We’ll do it in spite of the naysayers.

Posted by Steve | Report as abusive

Let’s define green technology as any possible way to generate electricity or heat that doesn’t generate CO2 emissions, or highly problematic waste.This leaves us with an abundance of alternatives, and ethanol and other bio-fuels aren’t the best candidates.All around us there are energy – some obvious and readily available candidates are:Hydro power: dams and turbines – well known technologyGeothermal power: it’s right there under your feet. Drill deep enough and things get real hot, if you don’t care to drill that deep use more sophisticated heat exchangers. Easily done in places like Iceland http://en.wikipedia.org/wiki/Geothermal_ power_in_Iceland, but really not limited to areas where the crust is thin – it just gets a wee bit more expensive, but we are never going to exhaust this energy source.We need no new technology to make use of this energy source, and many people are able to reduce their electrical bill, nearly 50%, by drilling a shaft of about 150 to 300 feet and installing a heat exchanger.Solar power – it’s getting betterWind power – a windmill and a turbine – real simpleAs for the old electrical grids: Transmission and distribution losses in the USA were estimated at 7.2% in 1995, and that’s the mean value, older grids are far worse. Upgrading electrical grids will be beneficial

Posted by Emanon | Report as abusive

The views by this Lady are the reflection typical “90 day” thinking of too many in charge in politics/ government.Never mind US style consumerism took the world to this dire state of environmental exploitation and global warming. Just keep on consuming she says only worry is higher cost to her. ??? It is ridiculous how short sighted are some “leaders” to the problems faced by the world today. Its a shame too…I am not a treehugger just an economist taking a view of my children’s future.After all what does she think the Nigerians should cut back consumption first???

Posted by non US resident | Report as abusive