The Michigan Economy: How Will Climate Change Legislation Impact Economic and Job Growth?

If current federal climate change legislation is enacted, the Michigan economy is likely to experience slower growth in jobs and income according to a recent study by the American Council for Capital Formation. Michigan’s gross state product, employment, industrial output, state budget revenues and household income would fall relative to the baseline forecast. Higher energy costs resulting from the Waxman/Markey bill’s mandatory carbon emission reductions, energy efficiency mandates and renewable portfolio standards (RPS) passed by the U.S. House of Representatives will impede recovery from the current recession and reduce state budget receipts.

Background on the Study

This paper describes recent economic and energy trends in Michigan and provides details on the impact of federal climate bills such as the Waxman/Markey bill on the state.

The U.S. Congress is considering far-reaching climate change legislation that would impose a cap-and-trade system requiring sharp reductions in greenhouse gases (GHGs) and mandate high levels of energy efficiency and renewable energy. The U.S. House of Representatives passed a 1500-page climate change bill (Waxman/Markey, H.R. 2454) by seven votes in June, 2009.  Led by Senators John Kerry and Barbara Boxer, the U.S. Senate Environment and Public Works Committee passed a similar bill, S.1733, the Kerry/Boxer bill, which has tighter near-term emission reduction targets than the Waxman/Markey bill in November, 2009.  In May 2010, the American Power Act was introduced by Senators John Kerry and Joe Lieberman; it’s emission reduction targets are virtually the same as those in H.R. 2454.

The federal bills would require reductions in GHGs beginning in 2012 or 2013. The emission reduction targets would require a reduction of as much as 20 percent below 2005 levels in 2020 and an 83 percent reduction in 2050. Multiple economic analyses show that these federal climate bills would increase the price of electricity, gasoline and natural gas. In consequence, economic productivity, employment and household income would decline. The manufacturing sectors would be particularly impacted.

A recent macroeconomic study  conducted by the American Council for Capital Formation (ACCF) and the National Association of Manufacturers (NAM) found significant loss in gross domestic product (GDP) as a result of enactment of the Waxman/Markey bill. The ACCF/NAM study found that the Waxman/Markey bill would reduce cumulative GDP by as much as $3.1 trillion from 2012-2030. A loss of this magnitude would, in turn, reduce cumulative tax receipts from $670 billion to $1 trillion. Largely based on findings from the ACCF/NAM analysis, this study focuses on Michigan and examines in more detail effects on key industrial sectors and employment in the state.

Michigan has the highest unemployment in the nation. During the current recession, Michigan’s manufacturing sector has been hit especially hard. Federal climate change bills would place an additional burden on an already hurting industry. Michigan now derives 61 percent of its electricity from coal, the energy source most at risk under mandatory GHG caps. Without commercially available, cost-efficient carbon control technology, Michigan’s electricity prices for a typical household could be 60 percent higher in 2030.

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