FreedomWorks' Bogus 10

FreedomWorks, a conservative inside-the-Beltway grassroots organization run by former House Majority Leader Dick Army (R-TX), recently released its Top 10 Reasons to Oppose Cap and Trade.

Their unsound arguments are standard fare for the climate skeptic cognoscenti. They rely on studies from hyper-conservative organizations with a history of catering to industry, while omitting more widely accepted studies, such as those from the Environmental Protection Agency and the Massachusetts Institute of Technology.

It's also clear from their list that they don't have a specific problem with a proposal to cap global warming pollution, but rather with climate action in general—suggesting that they believe nothing should be done to address this crisis.

We respond to each of their arguments after the jump.

FreedomWorks Claim #1:

"It will raise energy costs: While different nuanced approaches continue to surface, any analysis of any cap and trade scheme comes to the same conclusion; energy costs will go up. The latest serious attempt to enact cap and trade in the United States, America's Climate Security Act of 2007 sponsored by Sens. Joseph Lieberman (I-CT) and John Warner (R-VA), serves as a good example. An analysis of this legislation cited during a Senate hearing held by the Committee on Environment and Public Works estimated the costs to the average American household would be between $800 and $1,300 by 2015, and then increasing to $1,500 to $2,500 by 2050."


The analysis cited above is from CRA International and it is seriously flawed. Their model is a 'black box' – they have never fully opened it up to outside peer review, so key assumptions remain hidden. And, like many economic forecasting models, it only counts one side of the ledger: it considers the costs of reducing emissions, but fails to assess the costs of inaction.

This claim also fails to account for the fact that reduced energy consumption can help offset increases in energy prices.

An analysis of the Lieberman-Warner S. 2191 legislation by the Department of Energy's Energy Information Agency (EIA) projects electricity prices in the year 2020 to be 3% higher than business-as-usual. But the EIA analysis also expects electricity consumption to be almost 4% lower than it would otherwise be.

The net effect is a projected decrease of 0.7%- about $0.7-in monthly electricity bills in that year.

Finally, study after study shows that inaction is the most expensive policy option. A failure to act will lead to rising insurance rates, crumbling public infrastructure, agricultural damage from droughts, extreme weather, new and more urgent public health threats, and increased international instability. Costs of inaction are estimated by the IPCC [pdf] to range from 1-5% of GDP in terms of global losses for 4°C of warming.

FreedomWorks Claim #2:

"It doesn't help the environment: If energy costs are going to go up for Americans, shouldn't there be significant environmental benefit and progress towards reversing climate change? You would think so. But even if the most aggressive of cap and trade schemes were properly adhered to, scientists that both advocate and oppose a cap and trade program widely agree that the maximum drop to the earth's temperature would be no more than 0.07 degrees Celsius by the year 2050. To give some sense of just how negligible this decrease would be, we cannot even estimate the absolute mean surface temperature of the earth within 0.07. What's worse is that cap and trade actually provides incentives to emit more carbon, not less. An article by the Christian Science Monitor explains: 'By turning carbon emissions into commodities that can be bought and sold, cap-and-trade policies could remove the stigma from producing such emissions.' In other words, if industries understand they are working within a legal framework when they output carbon, the public pressure for them to cut down is weakened. Evidence of this can be seen in Europe where most countries have seen carbon emissions go up, even though the European Union has had a cap and trade regime in place since 2005."


A cap is the most effective way of slashing our global warming emissions. The market for emissions permits will in fact create an incentive to reduce pollution since this would allow a company to sell its excess permits.

The global temperature drop calculated by FreedomWorks was actually calculated for an appraisal of the Kyoto Protocol (hardly an "aggressive cap and trade scheme" as it was a very small step covering only certain countries and ending in 2012).

All current climate proposals offer pollution reductions out to 2050 and are consistent with avoiding a warming of greater than 2°C, beyond which scientists warn that additional warming could lead to catastrophic, irreversible changes such as the disintegration of the Greenland ice sheet.

Given projected emissions, we can determine what's required to avoid this dangerous warming. This analysis finds that high-income, industrialized countries like the U.S. need to reduce emissions immediately, and reach about 80% below current levels by 2050—targets that are consistent with Obama's climate policy.

FreedomWorks Claim #3:

"It doesn't work where it has been tried: Speaking of Europe, let's take a closer look at how cap and trade is fairing. As mentioned earlier, the EU is watching carbon emission levels rise despite the fact that they have had a cap and trade system since 2005. Furthermore, the Heartland Institute reports that 12 of the 15 EU nations taking part in the 1997 Kyoto Protocol, a program that sets greenhouse gas reduction targets and serves as a precursor to cap and trade, are failing to meet their reduction targets, with three going over by more than 10 percent and another three going over by more than 20 percent. In fact, emissions for all EU countries went up on average 2.1 percent between 2000 and 2004. Compare this with the United States where currently no such regulatory regime exists and yet emissions went up only 1.3 percent during the same time period. Nonetheless, President Obama has announced an aggressive set of targets for reducing greenhouse gas emissions, promising to 'work expeditiously with key stakeholders and the Congress to develop an economy-wide emissions reduction program to reduce greenhouse gas emissions approximately 14 percent below 2005 levels by 2020, and approximately 83 percent below 2005 levels by 2050.'"


The EU emissions increase cited here refers to a time period (2000-2004) before their trading scheme took effect. The EU ETS cap was established in 2005 and remained in a trial phase until 2008.

In 2005, emissions in the EU fell by at least 50 million tons of CO2, a significant achievement for the first year of a trial phase.

The program fully got underway in 2008, and a preliminary analysis suggests that it cut emissions by 3% relative to 2007. And, the long-term price for carbon has prompted huge investments in the alternative energy sector, virtually guaranteeing further reductions. The EU has now pulled ahead of the US in renewable investment and entrepreneurial activity.

FreedomWorks Claim #4:

"It will cost Americans jobs: This calculation is a pretty simple one. For U.S. industry to comply with a cap and trade scheme, they have to reduce their carbon emissions. There are two ways to do this: (1) produce less – this obviously hurts jobs as companies would seek to streamline their workforce to compensate for a drop in production, or (2) buy carbon allowances in order to keep production up – this, too, would threaten jobs as companies would be forced to devote more internal resources to allowances, negatively effecting their bottom lines and potentially putting workers on the chopping block. In either case, the rising costs of energy under a cap and trade system, as mentioned earlier, only add to the problem. An analysis conducted by Charles River Associates in 2007 estimated anywhere from 1.2 million to 2.3 million jobs would be lost under a cap and trade scheme."


Again, CRA's analysis is flawed, inflating unemployment figures dramatically. In comparison, the EIA estimates that under a climate policy like the Lieberman-Warner bill, 174,000 jobs could be lost in 2015 and 128,000 jobs lost in 2030.

These numbers are drastically lower than those of CRA. But, it's only part of the picture. EIA's model does not predict the job creation associated with green energy technological innovation, which will be substantial given the huge investments required to build our 21st century energy infrastructure. As our Less Carbon, More Jobs report shows, the green energy economy = a lot of new jobs.

FreedomWorks Claim #5:

"It is in effect a hidden regressive tax: We've talked about how cap and trade causes energy prices to go up. That doesn't just hit American industry, but American consumers as well. The Congressional Budget Office (CBO) correctly notes that as these prices go up in the form of higher gasoline, heating oil, and electricity, the poor are hit hardest with what is in effect a hidden regressive tax. President Obama promises to return revenues to vulnerable communities, families and businesses, but that leaves taxpayers at the whim of government to redistribute income rather than letting taxpayer keep their hard earned dollars."


Again with the "hidden regressive tax" line. The climate skeptics certainly have their talking points down.

First, a cap on global warming pollution is not a tax. It is an environmental standard to send a clear market signal for American industries to innovate and deploy green energy technologies.

When it comes to increased energy costs, President Obama has already outlined a plan for giving climate revenues back to the people. The Office of Management and Budget recently released its new budget numbers which include revenues from cap and trade auctions. It dedicates a significant portion of money to tax cuts for the express purpose of compensating families ($525 billion from 2010-2019).

What energy cost increases there may be will be almost entirely offset through this compensation plan.

FreedomWorks Claim #6:

"It sets a dangerous precedent: While extremist environmentalists and their liberal allies have been whining about climate change for years, most stop short of declaring cap and trade the silver-bullet solution. Environmental groups like the Sierra Club and the National Resources Defense Council are generally supportive of the concept of cap and trade. However, as The Heritage Foundation has pointed out, these groups have found fault with actual proposals such as America's Climate Security Act of 2007, criticizing them for not going far enough and willing only to endorse them as 'a good first step.' As much damage as a cap and trade scheme would cause in its own right, this posture by extreme environmental groups foreshadows even more draconian regulations in our future."


Isn't it nice when climate skeptics presume to speak for the environmental movement?

Environmental groups agree that a strong climate policy is critical. There is strong support for passing the strongest possible bill to cap and reduce America's global warming pollution.

Fifty environmental and public interest groups recently came out in support of a set of stringent principles for climate policy in their National Call to Action on Global Warming. These principles call for an economy-wide plan to slash global warming emissions by at least 25% below 1990 levels by 2020 and by at least 80% below 1990 levels by 2050.

There is also broad support from the U.S. Climate Action Partnership (USCAP)—a group of businesses and environmental organizations that have formed an alliance in support of strong national cap and trade climate legislation.

FreedomWorks Claim #7:

"It prevents market forces from working for the environment: The market distortions imposed by a cap and trade system would be significant. Recently, major energy companies such as ExxonMobil and Shell have invested hundreds of millions of dollars in technologies that capture and store carbon as well as lower carbon alternative energy sources. A cap and trade system however, sets up perverse incentives that will distract these and other companies from market-based solutions to curb carbon output. Resources instead will be funneled to the artificial market for carbon allowances that cap and trade sets up."


It's hard to even follow where this claim is coming from. There are no perverse incentives at play—far from it. A cap and trade system creates a direct incentive for investment and deployment of clean energy technologies.

A cap on global warming pollution will establish a strong price signal for carbon, creating a direct incentive for companies to increase investment in clean energy technology since reducing pollution will allow them to sell excess permits back to the market. Companies like Shell (a partner in USCAP) puts its money where its mouth is having already invested in low carbon technologies, making it well positioned to deploy these technologies to reduce its emissions.

The price signal will also help unleash investments put on hold while companies have been waiting for clear regulations.

FreedomWorks Claim #8:

"It threatens to put the U.S. at a competitive disadvantage with other countries: Though the E.U. and the United States may be buying into cap and trade, industrial giants like China and India are not. Remember the lost jobs we talked about in point #4? In addition to China and India, nearby Mexico (another country where cap and trade is not even a remote possibility) are more than willing to pick up the U.S. slack and bolster their already robust manufacturing sectors."


Since when does America follow the lead of China, India or any other country?

The truth is that solving global warming will require a coordinated global effort with every country doing its part. A strong U.S. cap on global warming pollution is a critical step towards a truly global system. And a domestic cap and trade program should include a mechanism that connects the market to emerging economies like China and India.

In addition, the sooner the U.S. establishes its own cap and trade system, the sooner a global system can be established (a post-Kyoto system) which would encourage all nations to seek the lowest-cost solutions and provide incentives for others to join.

Maintaining the competitive edge of the U.S. is a critical issue that has not been lost on the policy-makers on Capitol Hill—provisions from border tariffs to output-based rebates have been included in these policy proposals in order to address this concern.

FreedomWorks Claim #9:

"It opens the door to massive fraud and corruption: As energy companies look to game the system, cap and trade would open the door wide for fraud and corruption that could devastate U.S. investors and the economy as a whole. This has been seen already in the UK, a country currently participating in cap and trade. In a recent article by the British-based Guardian newspaper they report: 'Britain's biggest polluting companies are abusing a European emissions trading scheme (ETS) designed to tackle global warming by cashing in their carbon credits in order to bolster ailing balance sheets.' In the United States we have seen what happens when companies engage in creative accounting measures to hide losses and the staggering domino effect it can have on Wall Street investors and the larger economy. If you need more proof of this threat, look no further than this report by The Competitive Enterprise Institute that discusses Enron's support for a cap and trade scheme that would allow them to dominate this new, made-up market for carbon."


So, let's get this straight – FreedomWorks, which is an organization entirely focused on deregulation, is citing the recent abuses on Wall Street and Enron accounting as a reason not to regulate America's global warming pollution?

The Guardian article referenced here discusses how the current selling of credits is not unusual given the current recession (FreedomWorks omits this part). The article quotes Point Carbon, (an information provider on carbon markets), which explains that the "Recession in Europe is bringing a slowdown in manufacturing meaning less production and less emissions. Companies are doing exactly what is the rational thing to do in these circumstances which is to sell if they are long on credits."

The companies are not gaming the system, they are simply selling their credits at an opportune time—they will still have to meet the same reduction requirements, illustrating how assured environmental improvements and entrepreneurship can go hand in hand.

The market for carbon will be tightly regulated in the U.S. to ensure compliance. Particularly given the recent problems with market manipulation on Wall Street, policy-makers are acutely aware of the necessity for strong oversight of the carbon market. Provisions in any cap and trade proposal will provide for transparency and accountability; it will be closely monitored by the government—and its progress carefully watched by independent NGOs as well as the private sector.

FreedomWorks Claim #10:

"It threatens to bust the federal budget at a time when the United States can scarcely afford it: Federal spending continues at a breakneck pace. The recent passage of the trillion-dollar stimulus bill along with even more taxpayer funded bailouts looming on the horizon add to U.S. budget woes and sink us deeper into recession. And as if times weren't tough enough, the CBO reports that cap and trade would heap additional undue pressure on our fragile budget. According to their report, government would face the same challenges with higher energy costs that consumers do. Additionally, the fall in production for U.S. industry would lead to a loss of federal government tax revenues. Further increasing spending while decreasing revenues makes cap and trade a tough sell in the current economic climate."


Achieving strong emissions reduction targets is both feasible and affordable. In fact, estimates of the impacts of a federal climate policy on U.S. GDP are minimal—the median of the forecasts made by the EIA, EPA, MIT, and the DOE is only 0.58%.

This figure is so small that even the differences between GDP forecasts overwhelm the impact that any of them predicts from a federal climate policy, and this is even before you take into account the growth in clean technology spurred by a cap.

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