Economics of climate change in forefront

Washington Post | By Juliet Eilperin

For a decade or more, the political battle over climate change has been fought largely over the validity of the science of global warming. But Tuesday, as the Environment and Public Works Committee opened its first hearing on a Senate climate change bill, those concerns took a rear seat to a different issue: the potential economic impact of climate change.

And the scene was set for a battle over best estimates.

The shift, which has taken place everywhere from the U.S. Chamber of Commerce to the most liberal environmental groups, has prompted an array of competing studies aimed at predicting what will happen if the United States comes up with a means of charging industries for creating the emissions linked to global warming. The answer to that question is based on complex calculations projecting years into the future — the interpretation of which is influenced by each side’s underlying beliefs. And it promises to define the debate on Capitol Hill for the next several months.

“Ultimately, members of Congress must be able to explain the impact their vote will have on monthly electric bills and a gallon of gasoline,” said Jason Grumet, president of the Bipartisan Policy Center, a centrist think tank. The administration gave a nod to the economic trade-offs Tuesday when it sharply narrowed the number of facilities that would be subject to new emission-control rules.

The global warming debate, which used to feature abstruse academic discussions about carbon atmospheric concentrations and how warm it was during the Medieval Warm Period, now centers on projected electricity prices and how many windmills will be running years from now. The evolution reflects how, in the midst of an economic downturn, the cost-benefit analysis of acting on global warming might be the question that matters to most lawmakers.

Economics dominated Tuesday’s hearing. Sen. Lamar Alexander (R-Tenn.) compared a bill that aims to reduce pollution by making businesses pay for it with buying fire insurance.

“I have no problem with the problem. I have a problem with the solution,” he said. “But I’d buy insurance that worked. I wouldn’t buy insurance that’s so expensive I couldn’t pay my mortgage or my hospital bill.”

Dan Weiss, a senior fellow at the liberal Center for American Progress, said the Senate is divided into three groups: those who are unlikely to support a climate bill, those who are and the influential people he calls fence sitters. “The senators who are undecided on global warming are very focused on the cost of cleanup and the impacts on important industries in their state.”

That includes lawmakers such as Sen. Lindsey O. Graham (R-S.C.), who said in an interview Monday, “We need to come up with a package that makes environmental policy better business policy.”

In anticipation, groups on the left and the right — as well as government outfits such as the Environmental Protection Agency and Congressional Budget Office — have issued a spate of analyses projecting the costs and, sometimes, the benefits of congressional climate legislation. But the fine print in many of these projections reveals that they are based on assumptions that could easily turn out otherwise, meaning lawmakers will have to take a leap of faith about how a cap-and-trade program — which would control pollution by providing economic incentives to reduce emissions — might affect the economy.

Senators from both parties, however, spoke during Tuesday’s hearing as if they had the answer. Sen. John F. Kerry (D-Mass.) devoted most of his nearly half-hour testimony on the bill that he co-wrote with the panel’s chairwoman, Sen. Barbara Boxer (D-Calif.), to “the economic opportunities that stare us in the face” under a cap-and-trade system.

Referring to an EPA analysis that predicts the bill could cost a U.S. household 30 cents a day, Boxer said: “For 30 cents a day, we will put America in control of our own energy future and take a stand for home-grown American energy rather than foreign oil from countries who don’t like us. For 30 cents a day, we will protect our kids from dangerous pollution.”

The panel’s top Republican, Sen. James M. Inhofe (Okla.), voiced widely held worries about adding to the economic problems of many workers. The fact that the measure includes provisions to soften the transition to a low-carbon economy, he said, “is an implicit acknowledgment that the bill will destroy jobs. . . . I’m sure the worker at a cement plant, when he loses his job, won’t find much consolation in green welfare programs.”

Some Republicans highlighted CBO Director Douglas W. Elmendorf’s Oct. 14 testimony that the bill by Democratic Reps. Henry A. Waxman (Calif.) and Edward J. Markey (Mass.), which the House passed over the summer, would cause “significant” job losses in fossil-fuel industries and would slow U.S. economic growth for several decades, including between 0.25 and 0.75 percent by 2020. Sen. John Barrasso (R-Wyo.) said the policy reflected the administration’s tendency “to promise jobs for all, create some for a few and let the rest of us fend for ourselves.” But Markey countered in an interview that the CBO factored in neither the cost of inaction nor the potential benefits of technological innovations that could rise once the government treated carbon as a pollutant and put a price on it.

“The CBO view of the world is a green eyeshade, rear-view mirror that cannot factor in the technological revolution or our national security,” Markey said, adding that a cap-and-trade system would spawn “the energy Amazons, eBays, Googles and YouTubes” of the future.

Environmental groups have issued several reports in recent weeks buttressing Markey’s point. The Pew Environment Group surveyed every state and found that from 1998 to 2007 “clean energy” jobs grew at a national rate of 9.1 percent, compared with a traditional job growth rate of 3.7 percent. In June, the Center for American Progress and the University of Massachusetts at Amherst’s Political Economy Research Institute predicted that a $150 billion annual public and private investment in clean energy would produce a net increase every year of 1.7 million jobs.

Margo Thorning, chief economist at the conservative American Council for Capital Formation, criticized the June prediction for using a static economic model rather than a macroeconomic one, which would show how higher energy prices reverberate throughout the economy. She added that the assumption embedded in the EPA analysis that Boxer cited — a 150 percent increase in the number of nuclear plants by 2050 — was unrealistic.

But studies projecting large job losses are similarly based on data that have not been established. One by the American Council for Capital Formation and the National Association of Manufacturers found that up to 2.4 million jobs could be lost by 2030 in part because it assumed that only half as many carbon offsets would be available to keep energy prices lower. Another, by the Charles River Associates for the National Black Chamber of Commerce predicted a 2.2 million job loss by 2030 because of plugging in higher cost estimates for nuclear and geothermal energy projects. “There’s never a single, precise answer,” said Ken Ostrowski, a director at McKinsey and Co. who helped write the firm’s reports on the cost of cutting U.S. greenhouse gas emissions and improving energy efficiency.

“You have to deal with uncertainties like the speed at which the technology could be implemented.”