U.S. Climate Change Policy, Price Volatility and U.S. Competitiveness

Before the Committee on Ways and Means

U.S. House of Representatives

March 26, 2009
Executive Summary

Climate Change Policy, the U.S. Economy and Competitiveness: Recent private and government analyses of the impact of cap and trade proposals such as the Lieberman-Warner bill (S.2191) which sets targets to reduce GHGs to 15 percent below 2005 levels by 2020 and to 70 percent below by 2050, show that there are likely to be significant adverse consequences for the U.S. economy and job growth. Higher energy prices slow economic growth. An ACCF/NAM study shows that GDP declines by as much as 1 percent in 2020 and by up to 2.7 percent in 2030. Total U.S. employment (net of new jobs created in green industries) declines by 1,210,000 to 1,800.000 jobs in 2020 and by as many as 4,100,000 in 2030, compared to the baseline forecast.

Climate Change Policy and Price Volatility: The ACCF/NAM analysis of the Lieberman/Warner bill shows significant energy price increases by 2030.The cost of electricity to the residential sector will rise by 101 to 129 percent by 2030, while the industrial natural gas price increase is projected to range between 180 and 244 percent. The effect of mandatory GHG reduction targets is to significantly increase the share of U.S. electricity generated by natural gas compared to the baseline forecast and industrial natural gas prices would rise by 180 to 244 percent by 2030.

Obama Administration Climate Change Proposal: Impact on the U.S. Economy: The climate change plan outlined in the Administration’s FY 2010 budget sets a target of 14 percent below 2005 levels by 2020 and 83 percent below by 2050 with 100 percent auctioning from the beginning. The Administration appears to expect the price of a carbon allowance to be approximately $13 to $16 dollars per ton of CO2 and that its cap and trade proposal would yield $675 billion over the 2012-2019. Based on the various studies, the estimated payments to the Federal government for carbon permits seem far too low.

Environmental Impact of U.S. Climate Change Policy: As noted in the new Council of Economic Adviser’s Report to the President, U.S. policies to reduce GHGs will have virtually no environmental benefits unless developing countries, whose emissions are growing strongly, also participate. The CEA report states that global concentrations of CO2 in 2100 will be almost unaffected by U.S. emission reductions unless developing countries participate. Thus, sacrificing U.S. economic and job growth through unilateral climate change policies would yield little environmental benefit.

Conclusion: To be effective, policies to reduce global GHG emission growth must include both developed and developing countries. Polices that enhance technology development and transfer are likely to be more widely accepted than those that require sharp, near term reductions in per capita energy use.

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