–- 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?
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I find it interesting that the countries cited as examples of industrialized states with lower unemployment ratings than the US are also some of those states whose environmental controls are stricter and also whose gas prices are higher that the US’s. Perhaps Diana should have found some countries with freerer markets and lower unemployment rates to cite as relevant examples?
Also, I think one of the main purposes of halting pollution now is to allow there to be opportunities and resources available for future growth. If the current depressing effect on the economy is less than the future depressing effect of a polluted environment on the economy, than it would be worth it to regulate! But it is impossible to measure that…
June 26th, 2009 10:36 am GMT - Posted by Drewbie
I don’t even see the point of this legislation.
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They had to cram this through to save 3existing carbon markets.
Kyoto is the only framework supporting carbon markets and it expires in 2012….ours has to be in place by 2012
see the connection?
this is about saving the a$$ of people that are already heavily invested in the Kyoto protocol carbon credit scheme.
this article is a great big lie horrible so called journalism France has stricter emission than the u.s. so its just horrible in a million other ways so she wants the us to keep depending on foreign oil
What will the climate change bill do to your job?
This article is a little close to home since I used to work for a coal fired power plant and a nuclear power plant. The first statement about the unemployment rate just makes me mad. I don’t believe the government really knows what the unemployment rate really is… did they count me? I don’t work, I don’t draw unemployment. Am I looking for a job, yes, you bet. News Flash, America’s unemployment rate is already way above other industrialized countries.
As for emissions, HA, coal fired power plants cheat. They know how to ride the line; I worked there and saw them bypass the equipment that monitors the emissions. Some of the units are so old they leak every thing from every where. I left the coal fired plant because I feared for my life in that death trap. The operators were asleep at the wheel. The supervisors would jingle their keys before they entered the control room to wake up the operators, so they wouldn’t be caught sleeping. If the public only knew what really goes on in those plants. I was told by a supervisor, if the relief valves on the roof lifted, they would spew empty beer and liquor bottles because they used to sit on the roof and drink; then throw the bottles in the pipes on the roof.
Nuclear, well lets just say, it is clean and cheap but the fuel is cradle to grave responsibility for the companies. To be honest, I would be more afraid of the lack of security at the plants, it’s a numbers game. Did you see the Wackenhut scandal? Well, a nuclear power plant (XXXXXXXX XXXXX) in Mineral VA had the same problem at one time and may still. How do I know? I worked there and one of my instructors told me. He told me he used to be an officer and he covered while others slept. The officers would take their gear off in the towers, even their shoes; now tell me how they can call themselves ready to protect the plant. I know first hand that the drills are staged and rigged. See, if they fail, NRC would shut them down and that would cost a lot (politics and money). We (I and my instructors) tried to challenge them during training drills and we got our hand slapped. They believe that when the enemy comes, HA, it will only be five bad guys (terrorist) and so many vehicles (water and/or land) with “X” amount of explosives (i.e. 75 lbs) for each bad guy (DBT). Yep, that’s it, so they only drill to fight off five guys.
Are you still worried about emissions? How about unemployment? When the bad guy (terrorist) does finally come… we won’t be worrying about either any more.
Ok… back to clean energy. We need it, clean energy, the emissions are a problem and those that say they aren’t, well they must not be educated and they probably don’t have children.
Tell you what… require the Nuclear Plants to have more security and you will create more jobs; energy prices may increase but at least we may be around to use the energy.
I personally hate Coal and Nuclear after working for that company and hope they don’t get funding for the new units. I would like to see renewable energy take over.
The worst thing a company can have is a disgruntled ex-employee with a memory.
“Diana Furchtgott-Roth….a senior fellow at the Hudson Institute”
In other words she’s a shill for unregulated Capitalism.
I’m just curious why fossil fuel burning power plants cannot gradually be replaced with nuclear facilities. There may be no solution to the the climate change problem that is likewise economically viable, but something must be done to curb greenhouse emissions no matter what the cost.
Drewbie- Despite the best efforts of the oil companies and other related interests at confusing the public, anthropogenic global warming is real. I won’t digress into your level of idiocy to prove what the overwhelming majority of the scientific community (which I can safely assume you’re probably not a part of) concluded years ago.
A few things: Firstly, meeting these standards is not technologically impossible without reducing our standard of living. Our buildings are inefficient, our transportation system is inefficient, our sources of energy are inefficient…the technologies exist to turn all of these aspects into net-zero entities. There are buildings that supply their own power you know. Our rate of consumption and waste is also horrific. There is no issue with the technology, the issue is entirely with the society. All that aside, there is no incentive to improve the technologies right now because the coal and oil and gas are so cheap. This might provide reason to invest in new technology. Secondly, this entire opinion is based on the work that TWO economists did over twenty years ago. Even if the claims have some worth, gas prices have been on the rise since then, and will continue to rise forever. Is that to say that industry jobs will continue to decline until there are none left? I don’t think that is quite the case, therefore I don’t find this entirely relevant. Energy prices will continue to rise as always. North American energy prices are peanuts compared to those in Europe and they are considered to have a better quality of life than us. Think about that. The only real logical statement I see here, is that the bill may coerce companies into moving abroad…however from what I see, nothing is manufactured here anymore anyways, so we’re not losing too much.
Another question you might want to ask would be, “what will climate change do to your job?” Because I’m afraid to say that the prediction there would likely be the same as the one that the author reached in this article. The difference is that climate change has the potential to really mess up quite a bit more than your job.
This legislation is far from perfect, but it’s a step in the right direction. Whether you believe that climate change is a man-made phenomenon or not, I think everyone realizes that the Earth’s climate is currently on a trend that doesn’t serve to benefit it. It’s within our best interests to take the issue seriously and do what we can to stabilize things.
Both the President and Congress have already shown regular Americans who they really work for with the actions taken in the financial bailouts. Cap and tax looks to be the icing on top. While I understand that Americans may need to slow consumption and live more sustainably, I do not understand how so called representatives could even consider inflicting more pain on the many businesses and individuals who are already suffering at this point in time. Just how much do the banks stand to make if this legislation passes anyway?
I can’t believe this bill made it through Comgress, albeit by a narrow margin.
Atmospheric CO2 levels have been increasing for thousands of years. Man’s recent CO2 contribution has indeed increased since the industrial revolution, but when compared to the CO2 emitted through natural processes and systems such as the ocean, man’s CO2-impact on the atmosphere is like smoking a cigarette in a burning building.
Earth’s periods of temperature increase have fluctuated reliably with sunspot activity. Think about it: Earth’s temperatures rise and fall at the same time as those of Mars. We’re not blowing carbon dioxide from the tailpipes of SUV’s on Mars, but Earth’s and Mars’ temperatures both rise and fall around the same times according to sunspot activity.
With this in mind, it is clear to me that this bill is nothing more than a scheme to increase governmental control of the private companies in the United States.
Supporters of the bull said that it will help solve the problem of global warming. I’m not saying temperatures aren’t rising, I’m saying that this bill will do nothing to affect it because CO2 isn’t the cause of the problem.
This bill will prove detrimental to America if put into action by spending money America doesn’t have on a solution to a nonexistent problem in order to put the money and power of hard working people in the hands of Washington politicians.
This is the inherent flaw of capitalism. It suppress and discourage innovation and simply “right things to do” if it doesn’t make economic sense. “If” cold fusion or anything that would put an end to current state of business is discovered, it too would have to be discarded because the unemployment would be catastrophic. Should we continue to ignore environment because it “might” increase unemployment in US? Would you teach this to your children? Who cares if it’s called cap-and-trade or tax? By all means adopt it if it helps reducing emission. And it seems to be effective as demonstrated by countries that have adopted it already.
Think about how US is viewed by others. We are not the only people living on Earth. US produce the most pollutant but we do very little about its resolution compared to other countries. Drive around a neighborhood on garbage collecting days and you see 2~3 barrels of garbage from each household in one week. But then again, we don’t care what others think… do we?
Marianne
The only upside is maybe we will get new House and Senate leaders once more Americans are force to work 3 jobs because we can’t afford to live anymore on our present saleries while all the other foreign counties giggle at us.
The argument that our economy is going to be hit with higher unemployment and higher taxes is nothing compared to when our farmers can’t grow crops at the scale they do now, when our nation’s forests are decimated by parasites that once were killed off by cold winters, or when fishing industries collapse worldwide because the fish cannot reproduce anymore… A good economy is needed for a high standard of living, but a good environment is needed for human survival. People need to remember this.
Marianne, Europe utilizes protectionist trade policies to sustain it’s manufacuring base by subsidizing exports while using various non tariff policies to restict imports. Of course much of the rest of the world does the same thing in various ways. We are the only country foolish enough to play by the rules while the rest of the world steals our jobs. Look for more of the same when these climate change treaties and bills are enacted.
Why is that the supposedly most advanced and powerful country in the world has a problem dealing with global warming, and alternate energy bill. 10 years ago the bill failed 95-0 in the Senate. Are we a country of slaves to the energy industry? This is pathetic. China, Korea, Japan are investing huge amounts in solar, wind, and other alternative sources of energy and here we are struggling to pass an energy bill. There are even people who have doubts about global warming. If we give our country back to conservatives/Republicans, I don’t foresee a bright future for future generations. Only spend money on defense and bombs
We cannot keep poluting the air we breathe. We must find alternate energy sources and with this bill wind turbines and solar panels will have to built and that means jobs. If a job is lost in the coal business, one should be new in the wind or solar business.
Solar panels and wind turbines will have to be built and shipped and installed all of that is new jobs.
There is no way we can cut taxes regardless of what we and keep borrowing money to run the country. Bush almost put us in bankruptcy with his stupids massive tax cuts, not one, not two, but three for the richest of Amreicans, oil companies and the biggest corporations in America, that he and the republicans call small business.
Now this woman just pisses me off. Who really knows what the unemployment rate really is… I am unemployed and don’t draw unemployment. Did you count me? As for clean energy, we need it and anyone that doesn’t see that figures they won’t be here when the existing power plants are maxed out and we have rolling blackouts and the crime rate sores and so on and so on…
The author concludes that the US unemployment now is higher than both France and Germany - yet both these countries have had much stricter emission standards than the US for several years. So maybe there is an upside to an energy policy after all….
I don’t even see the point of this legislation. Atmospheric CO2 has been rising for the last 6000 years (since man first began domesticating animals and altering the landscape for agriculture). The relative amount released today by man vs the amount released by natural processes is miniscule. The effects of the CO2 rise are already noticable. This legislation will do nothing to curb or even slow climate change, but will negatively affect the lives of everyone under it’s jurisdiction.
I likewise interpret a cap-and-trade system as a tax. Theoretically a company can pay to pollute while another can get paid for doing nothing. I do not recall hearing much discussion on a cap-and-trade program during the election. But its introduction represents a fundamental re-engineering of industrial production. The most reliable and appropriate control over the production of greenhouse gases is the cost of fuel. It makes more sense simply to apply a fuel surtax rather than creating an enormous bureaucracy.
The cap-and-trade system separate from the underlying benefits of creating green buildings. If we green our buildings, the technology believe me can usher in a new age of growth, similar to that created by the introduction of personal computers. But at the moment its just a little seed that can die if trampled over or not watered. But if you think about it from a detached perspective, as a population grows, we just need a more sophisticated way to manage the environment. Energy is an input along with air and water. On the other side of the equation are the outputs involving recycling and waste management.
Sometimes growth is limited by the structure that supports it. The question for me is whether or not a cap-and-trade system genuinely contributes to positive change. I’m not sure. I guess it depends on how exactly it is implemented. But in worse case scenario, it can rob companies of resources to adapt.