Waxman-Markey Legislation Will Result in Higher Energy Prices, GDP Declines and U.S. Job Loss
Well-intended legislation to create jobs, enhance energy supply and combat climate change will in fact bear a high price tag to U.S. consumers including substantial spikes in energy prices that will slow economic growth, reduce U.S. employment and GDP—all with little to no benefit in global greenhouse gas reduction. American Council for Capital Formation Senior Vice President and Chief Economist Dr. Margo Thorning urged lawmakers to closely weigh the minimal environmental benefits of cap and trade policies against their adverse impacts on the U.S economy, job growth and competitiveness.
“Higher energy prices slow economic growth,” Thorning said. “Under the cap and trade system proposed in this legislation, the large spikes in electricity, natural gas and other energy sectors will be passed on to consumers that can ill afford higher bills in this difficult economy.”
Thorning recently presented stark economic conclusions on the high economic costs of a cap and trade system before the House Energy and Commerce Subcommittee, chaired by Rep. Ed Markey (D-MA) and also to the House Ways and Means Committee. As one example of a cap and trade system effect on energy prices, Thorning pointed to an analysis by the American Council for Capital Formation and the National Association of Manufacturers of last year’s legislation by Senators Lieberman (I-CT) and Warner (R-VA) S.2191, which set targets to reduce GHGs to 15 percent below 2005 levels by 2020 and to 70 percent below by 2050. The ACCF/NAM analysis shows the cost of electricity to the residential sector will rise by 101 to 129 percent by 2030. The share of U.S. electricity generated by natural gas compared to the baseline forecast increases and industrial natural gas prices would rise by 180 to 244 percent by 2030.
The ACCF/NAM study also shows that under the proposal, GDP would decline up to 2.7 percent in 2030. Reductions in total U.S. employment (net of new jobs created in green industries) could reach 1,210,000 to 1,800.000 jobs in 2020 and as many as 4,100,000 in 2030. Results of other modeling efforts from CRA International, DOE’s Energy Information Administration, the U.S. Environmental Protection Agency and the Massachusetts Institute of Technology show similar findings.
Sadly, U.S. cap and trade proposals will have virtually no environmental benefits unless developing countries, whose emissions are growing strongly, also participate. Thorning cited the new Council of Economic Adviser’s Report to the President which 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.
Thorning also expressed concern over the Waxman-Markey legislation’s mandates for increased renewable energy, noting that renewables already receive the lion’s share of Federal budget energy expenditures. Furthermore, renewable energy tends to be more expensive than conventional energy and substituting more expensive energy for cheaper energy will slow, not enhance, the economic recovery.
“Congressmen Waxman and Markey should be praised for their noble intent to reduce greenhouse gases, but under this legislation the U.S. will suffer significant economic pain with virtually no environmental gain,” Thorning concluded. “To be effective, policies to reduce global GHG emission growth must include both developed and developing countries. Enhancement of technology development and transfer are likely to be more widely accepted by the developing countries that must be brought to the global table on climate change solutions.”