What will the climate change bill do to your job?

June 26, 2009

diana-furchtgottroth–- 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. –-

Next Thursday, just in time for the July 4 holiday weekend, America’s unemployment rate is forecast to rise from 9.4 percent to 9.6 percent, well above rates in other industrialized countries.

Yet today the House of Representatives is rushing to pass the American Clean Energy and Security Act of 2009, even though the bill was incomplete yesterday and congressmen have not yet had the opportunity to analyze it. The bill would send America’s unemployment rate even higher.

The 1,200-page bill, cosponsored by Henry Waxman, Chairman of the House Energy and Commerce Committee, and Edward Markey, Chairman of the House Energy and Environment Subcommittee, would increase the price of energy by setting allowances for greenhouse gas emissions and mandating new standards for energy production and use.  The bill would raise $846.6 billion over 10 years while adding $821.2 billion to federal spending.

The bill requires that greenhouse gas emissions in 2012 do not exceed 97 percent of 2005 emissions, declining to 17 percent of 2005 emissions by 2050.  Meeting these standards now is technologically impossible without radically reducing our standards of living, but Congress is hoping that technology will magically appear as needed.

The mechanism for this is a “cap-and-trade” program under which allowances to emit greenhouse gases would be issued by the Environmental Protection Agency at a steadily declining rate through 2050.  When emissions exceed a firm’s allowance, or cap, it would have to purchase allowances from the government or other firms, a tax under another name, driving up costs that would be passed on to consumers.

Electric utilities have been given free allowances to encourage them to support the bill.  Oil and gas would be particularly hard hit, because they are responsible for 35 percent of emissions yet are allocated only three percent of the free allowances.

Just as the increases in oil prices in the 1970s brought about an increase in unemployment, the energy provisions in the Waxman-Markey bill could usher in years, perhaps decades, of lower economic growth and higher unemployment than would be the case otherwise.

The effects of the oil price increases between 1972 and 1988 have been extensively analyzed by economists Steven Davis of the University of Chicago and John Haltiwanger of the University of Maryland.  Although their research deals with the effects of oil price increases, it is also applicable to increases in the price of energy, which would be the effect of Waxman-Markey.

Davis and Haltiwanger find that oil price increases resulted in more jobs lost than jobs gained in almost every industry sector of the economy.  The largest oil shock, in 1973, caused an estimated eight percent decline in manufacturing employment over the following two years.

Oil price increases have larger effects on economic activity than oil price declines, Davis and Haltiwanger calculate, a finding shared by other economic studies.  In other words, when energy prices increase firms lay off workers, but when prices decline the workers are not hired back as fast.

Davis and Haltiwanger also find that higher energy prices are more likely to suppress employment than monetary shocks. Many politicians fret over the harmful effects of recent American monetary policy, but overlook the even greater danger to employment from the Waxman-Markey bill.

Supporters of the bill claim that the new regulations will create jobs, because people will have to be employed to produce the new technology.  But the funds for the new expenditures have to come from somewhere, and money spent on new products is money that cannot be spent on other activities, such buying clothes or food, or anything else that Americans would otherwise buy.  This would drive down employment in those industries.

In fact, not only does the bill penalize American firms through higher costs, it gives firms a financial incentive to move abroad through “offsets,” activities that supposedly lower carbon emissions elsewhere.  Since Congress knows that firms cannot meet the standards in the bill, legislators are allowing firms to meet 30 percent of their 2012 greenhouse gas reduction obligations, increasing to 60 percent by 2050, by buying offsets. Half of these offsets can take place abroad.

The offset provisions allow firms to shift economic activity abroad to countries with laxer emissions standards, further damaging U.S. job creation. A plant’s emissions might exceed its U.S. allowances, yet its technology might produce lower emissions than the norm in a developing country, allowing the relocation to count as an offset.

The American unemployment rate now exceeds those in France (8.9 percent) and Germany (7.7 percent). With unemployment climbing even without the Waxman-Markey bill, the question for Congress is the following:  how high do you want the rate to go?

43 comments

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First, citing today’s unemployment rates here and abroad is a red herring, since these figures reflect current conditions and past policies. This bill won’t begin to have any effect on the economy for years to come, due to the initial free emissions allowances and extended phase-in of emission caps. Secondly, the cap is not on energy, but only on green-house gas emissions, leaving room for clean, alternative energy sources to displace fossil fuels over time, as well as the potential for development of sequestration or other emission control technologies.

No doubt there are flaws in this bill; an inevitable result of the legislative process. The dire consequences predicted by a number of the above posts, though in highly improbable. The nay-sayers always predict the most dire results. Let’s get real. What will happen if some form of cap & trade bill is finally passed is a shift of investment dollars to greener technologies and away from fossil fuels, which is the whole point. It will not result in a total collapse of our economy. There is little doubt the bill will be highly modified by the Senate in any case.

Posted by William | Report as abusive

Oh no we as Americans can’t change our lifestyles! Not the American lifestyle. In America I’m FREE to pollute that’s what the commie liberal scum don’t understand. And just because I’m free to do something means I should! Because that’s my God given right!

No Way No How! Changing our lifestyle is not what we do here in America. No no no the world does what we say, we’re the leaders! We have the best economy, we have the best freedom. We got it all. Why do you think everyone wants to come here and better themselves?

Instead of changing anything let’s deny that climate change is real because that’s easier. If we say it’s a scam with out any proof but cite “information” then we can go on living the way we’ve become accustomed. All we have to do is compare the amount of carbon that gets released into the atmosphere from non-human sources and from human sources and tell everyone that we can’t possibly be the ones to blame because looking at the numbers it can only be deduced that it’s a “natural” phenomenon.
HA but what we won’t tell people is the amount of inorganic carbon that get’s released into the atmosphere from human and non-human sources. This is the type of carbon that isn’t readily absorbed by plants. We will also conveniently leave out the amount of carbon that gets absorbed into the environment period. If we only talk about how much is released then it’s a net positive statement.

All we have to do is muddle the debate cite unemployment and ailing economy and we’ll win. Economy vs Environment pff economy will always win because people are greedy and lazy. We won’t talk about the fact that a high paying job is worthless with out clean air to breathe, but that’s ok we’ll be able to afford buying and importing all of our food from south America, or elsewhere when we’ve polluted our own land so much that nothing can grow.

Screw alternative energy those aren’t viable, I won’t really say why, I will say this though, it’s because your climate change is killing the wind currents in the midwest. So if we get those turbines up now, then there won’t be any wind in 50 years! WASTE OF MONEY JUST LIKE TAXES. No I do not want social services I’m far richer than that. I don’t care about OTHER PEOPLE’s needs because mine are met!

Posted by Louis | Report as abusive

No one can deny the actions of greedy bankers has caused suffering all around the globe. More job loss or higher cost of living will not help the plight of those who still work. Whether or not cap and trade works is moot.

Continuing to burn coal is in no ones interest but mine operators. It is the dirtiest fuel there is and has the highest CO2 emissions. Equally disturbing is the suspension of fly(coal)ash in liquids. This waste is stored on sight at power plants across the country. I find it regrettable that little attention is given by the media to the TVA coal ash spill in Kingston Tennessee.

One billion gallons of ash flooded the town when the containment facility failed. The EPA has kept 45 of the worst hazardous waste sights a secret until last week. The information was released to environmental groups through the “Freedom Of Information Act” with the help of Senator Boxer from California. The Kingston catastrophe is estimated to be 100 time worse than the Exxon Valdez oil spill on the Alaskan coast. One can only speculate as to why President Obama while not release the names of visitors from the guest list to the White House. It is rumored coal industry interests have been making frequent visits.

The People of Kingston that were still working no longer do because of this disaster. At some point we must recognize the health of our environment is as critical to our economic well being as finances and manufacturing.

Posted by Anubis | Report as abusive