Monthly Archives: March 2009

This was originally posted on Grist.

With Congress moving forward aggressively to cap global warming pollution, opponents of strong climate legislation are muddying the economics to derail action.

First the good news: Congressional leaders have announced they will move forward with broad energy and climate legislation that will include a cap on global warming pollution — the single most important step we can take to fight climate change.

The bad news: with Congress on the cusp of action, opponents are once again circulating analyses suggesting that a cap on carbon will hurt the economy and overburden consumers with higher energy costs. The latest making the media rounds comes from the George Marshall Institute.

Like several similar studies we saw during last year’s debate over the Climate Security Act, the Marshall Institute analysis consistently misrepresents economic modeling results, painting an inaccurate picture of the estimated costs of climate policy. Here’s why:

Cherry picking numbers is a sour approach. The Marshall Institute’s study claims to be a meta-analysis, looking at economic studies of the Lieberman Warner bill (S.2191) by MIT, ACCF/NAM, CRA, CDA, EPA, EIA and CATF.¹ However, when the Institute makes conclusions about the impact of climate policy on employment and household consumption, it omits the most credible studies from its analysis, namely those by EPA, MIT and EIA.

• Household consumption. The Marshall Institute writes that “every study we examined predicts huge welfare costs in terms of consumption.” However, the Institute does not include the findings of EPA, MIT and EIA, which found the loss in consumption for 2015 to be only around 0.4 percent, less than half of Marshall’s estimate of 0.8 percent-1 percent. The Institute also cherry picks numbers by using 1 percent — the high end of its already inflated range of 0.8 percent-1 percent — to make its calculation.
• Impacts on jobs. The Marshall Institute’s conclusion that job losses will be on the order of hundreds of thousands to millions is based only on the work of ACCF/NAM, CDA and CRA. Careful examination of these studies finds them to impose artificial constraints on the economy’s ability to reduce emissions and rely on draconian assumptions that often ignore important provisions of proposed legislation. For example, the ACCF/NAM scenarios excluded banking, limited the use of offsets to 20 percent instead of 30 percent, artificially constrained CCS and assumed unreasonably high fuel prices. The scenarios were manipulated to create the desired model output. The Marshall Institute simply reuses these flawed studies to paint a false picture of mass unemployment. EDF is a fan of recycling, but not when it’s bad information that’s getting recycled.

Questionable modeling methods give fishy answers. The Marshall Institute’s calculation of household consumption has a bizarre start date. It calculated the effect S.2191 would have on consumption starting in 2008 — four years before the Lieberman Warner bill would even have been implemented. By calculating this imaginary impact, the Institute adds an extra four years of loss in consumption, further inflating its estimate.

Failing to consider the costs of inaction tells only half the story. The Marshall study, like most analyses of economic forecasting models, looks at the costs of reducing emissions, but fails to consider the costs of inaction. Temperatures are already rising around the world. If we do nothing to mitigate climate change, there will be costs to the economy as we deal with damaged infrastructure from rising sea levels, more frequent wildfires, and the multitude of costs from more severe tropical storms. The IPCC writes that by not acting, “global mean losses could be 1-5 percent GDP for 4°C of warming.” And, as Former Federal Reserve Chairman Paul Volcker said, “If we don’t take action on climate change, you can be sure that our economies will go down the drain in the next 30 years …”

The true story is this: When looking at unbiased sources, it becomes clear that climate policy is affordable and climate costs are modest.

According to a range of credible government and academic studies, the impacts of a well-designed cap-and-trade program on the U.S.economy and American households will be minimal. The median projected impact on GDP is just 0.58 percent in the year 2030, by which time the U.S. economy will have nearly doubled in size relative to 2005 levels. To put it another way, if U.S. GDP is projected to reach $26 trillion without a carbon cap in January of 2030, the economy would hit that same mark by April of 2030 with a carbon cap. Additionally, the estimated impact on household consumption is well under a penny per dollar of household income.

Even these credible models are likely to overstate costs, since they cannot predict the technological innovation that a cap-and-trade policy will spur – just as past cost estimates of environmental regulations have consistently overshot the mark. As Time magazine recently reported in a story on the economics of climate change:

The skeptics’ models tended to assume, quietly, that the pace of technological advance for renewable energy would be sluggish — significantly raising the costs of trying to cap carbon emissions. The models from the green side — led by the Environmental Defense Fund — tended to be fairer, projecting a range of possible economic impacts from cap-and-trade.²

Lastly, as noted above, none of these figures take into account the far higher costs of inaction — the costs that would result from the catastrophic impacts of unchecked global warming.

Here’s the bottom line: The United States can enjoy robust economic growth over the next several decades while making ambitious reductions in greenhouse gas emissions. And, in the long run, the coming low-carbon economy can provide the foundation for sustained American economic growth and prosperity.

For the real story on what the economic models say, see our report: “What Will It Cost to Protect Ourselves from Global Warming?”

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1. Massachusetts Institute of Technology (MIT), American Council for Capital Formation/National Association of Manufacturers (ACCF/NAM), Charles River Association (CRA), Heritage Center for Data Analysis (CDA), Environmental Protection Agency (EPA), Energy Information Agency (EIA) and Clean Air Task Force (CATF)

2. Is the Press Misreporting the Environment Story? Bryan Walsh in Time, March 1, 2009.