Climate 411

Climate Bill Passes Five Tests on Allocating Allowances

By Nat Keohane / Published: June 10, 2009

I was invited to testify yesterday in front of the House Energy and Commerce Committee on how allowances are allocated under HR2454, the American Energy and Security Act of 2009 (ACES). You can see my full testimony here.

I started with the broad economic arguments for passing climate legislation now: by doing so, we can harness American innovation, ensure leadership in making the next generation of clean-energy technologies, and unleash investment that will help pull our economy out of the recession.

Then I turned to the allocation provisions of the bill.  The allocation plan will preserve the environmental and economic effectiveness of the legislation, helping move us forward in solving the climate crisis in a way that is affordable, equitable and efficient.

Specifically, I outlined five major principles that any set of allocations should reflect, and illustrated how HR2454 fulfills each.

  • First, the bill protects consumers, particularly low-income consumers.  It does this through three channels: allowance value allocated to local distribution companies, who are required to pass that value on to customers in the form of lower utility bill; direct funding for rebates and energy credits directed specifically at low- and moderate-income households; and broader tax refunds, especially in the later years of the program. In total, nearly half (44 percent) of the total allowance value goes directly to households – amounting to an estimated $700 billion in present value.
  • Second, HR2454 includes provisions that preserve and strengthen the international competitiveness of U.S. businesses and workers during the transition to a clean energy economy, by directing about 12 percent of total allowance value (over the life of the bill) to energy-intensive and trade-exposed industries.
  • Third, the allocation plan respects differences across states and regions by allocating half of the allowances for electricity consumers on the basis of CO2 emissions and half on the basis of electricity generation.
  • Fourth, the integrity and credibility of the program is preserved since the bill ensures that consumers receive the allowance value intended for their benefit due to provisions specifically requiring utility companies to pass on the allowance value they receive.
  • Finally, HR2454 directs some value (26 percent over the life of the bill) to public purposes that are the objectives of the legislation, including clean energy innovation, carbon capture and storage, investments in renewables and energy efficiency, and climate change adaptation.

Overall, HR2454 passes these tests with flying colors.

Also posted in Climate Change Legislation / Read 1 Response

Let’s Just Give Up

By Tom Olson / Published: June 2, 2009

That, in a nutshell, is Jim Manzi’s prescription for climate change (see the June 8 National Review).  It’s a really, really bad one.

I’ll limit myself to three key points here, though there is much more to say about why Mr. Manzi is mistaken.

1. The damage from climate change in the United States is likely to be very large, and very bad. And it is coming soon.

Mr. Manzi may not have had the chance to take a look at the work done by the U.S. Climate Change Science Program, a major scientific effort by prominent research scientists from around the country, coordinated by scientists at federal agencies.

One thing this project has done is to look hard, using the best available scientific tools, at the specific impacts of climate change in the United States.  The final draft report on that topic came out in early January 2009.  That is, it came out during the George W. Bush Administration, with the approval of President Bush’s appointees across the federal government.  It’s called Global Climate Change Impacts in the United States.  You can see the draft here. (The final version should be out soon.)

It’s worth a close look.  (The graphics are spectacular.)  And it tells nothing like the Pollyanna-ish story that Mr. Manzi — a very successful entrepreneur, and obviously a smart person, but not a scientist — tells in his piece.

Just a few highlights of what we can expect during this century from the what-we-worry course that Mr. Manzi prefers:

  • By the period 2080-2099, devastating heat waves of the kind that killed more than 700 people in Chicago in 1995 will occur three times per year.
  • During that same period, the climate of Michigan will become like that of North Texas today.  Illinois will become like South Texas.
  • Florida will become stunningly and unrelentingly hot:  “By the end of the century, projections indicate that North Florida will have more than 165 days (nearly six months) per year over 90˚F, up from roughly 60 days in the 1960s and 1970s.”
  • The Great Lakes are likely to lose up to two feet in depth by 2070, with devastating effects on shipping:  “up to 240 tons of capacity [per large ship] for each inch of draft lost.”
  • “The combined effects of natural climate variability and human-induced climate change could turn out to be a devastating ‘one-two punch’ for the [Southwest] region.”

There is much more.  I urge you, and Mr. Manzi, to read the CCSP report to see for yourself.

The 2080’s may sound like a long time away to Mr. Manzi, but they don’t to me:  odds are my grandkids, and I hope my kids, will be alive to see the world we’ve left them.

2. However much we spend on government research, private firms will have no incentive to reduce their greenhouse gas pollution if it continues to be free to dump it into the atmosphere.

Curiously, Mr. Manzi does not credit the so-called “Breakthough Institute” for his proposal to solve the climate problem exclusively through government-funded research.  But his advocacy suffers from the same fundamental problem as theirs:  if a firm can emit pollution without paying any price for doing so, it has no incentive to spend money on cutting its pollution – whether using government-developed technology or otherwise.

It is truly surprising to see a prominent National Review columnist so strongly opposing use of the most basic of all free-market economic tools — markets and prices, which a cap would create — in favor of a hypothetical, future, government-funded, Buck Rogers fix.  (Mr. Manzi’s philosophy is popularly known as “pay-and-pray.”)

Consider one (important) practical example.  Suppose the government devotes vast  resources to developing new and better ways to capture the carbon dioxide emitted by coal-burning power plants and burying it underground.  (This is called “carbon capture and storage” in the business.)  However advanced this technology may be, it will cost money.  Why would Duke Power, AEP, or any other utility spend a penny on this technology if they can simply dump their pollution into the air for free?

Every undergrad who takes Econ 101 learns it’s bad if firms can impose their costs on other people – that is, externalize them.  Starting with the Clean Air Act in 1970, we’ve insisted that companies internalize the costs of other types of pollution — like mercury, sulfur dioxide, and dioxin.  But, in violation of the most basic rules of economics, we have yet to insist that firms internalize the costs of their global warming pollution.  That’s what cap-and-trade — and the Waxman-Markey bill — does.  It’s the right thing to do to protect us from the climate misery that the scientists tell us we are rushing towards if we continue, as Mr. Manzi urges, to do nothing.

3. Mr. Manzi’s projections of costs are far off base. 

Lots of serious economists have looked at the economic impact of putting a ceiling on greenhouse gas emissions.  And the consensus is that, at worst, it will have a very small impact on incomes and on GDP.   I say “at worst” because no one knows how to model the ways in which necessity (a price on carbon) begets invention, and thus lower costs.

The EPA’s analysis of the current (Waxman-Markey) bill is consistent with this consensus:  the Agency estimates that the bill is likely to cost households between $98 and $140 a year – less than a postage stamp a day.

Mr. Manzi says he can’t believe that.  But the EPA’s analysis relied on two of the most respected and sophisticated economic models available.  It is simply absurd for  Manzi to baldly pronounce that “he doesn’t believe the numbers,” as if he were competent to  judge what economic estimates are credible or not.

In any event, there’s plenty of logic behind the EPA analysis, including the fact that there are huge opportunities to live the same lifestyle we live now, while using much less energy.

Here’s a homely example:  the office building in which my organization rents space in Washington, D.C. is heated by an archaic, inefficient boiler that operates at about 60% efficiency.  Much more efficient boilers are available – boilers that save so much energy that they have payback periods of only a few years.  (And there are American jobs at every stage of replacing this dinosaur, from mining to manufacturing to installation.)

The respected consulting firm McKinsey & Co. did a big study showing there are similar opportunities throughout the economy.  With a little incentive from energy prices that internalize pollution costs, doing these sensible things becomes an easy lift.

There will always be voices telling us it’s too much trouble to control pollution – pieces like Mr. Manzi’s were commonplace before we cracked down on conventional pollutants in 1970, and before President George H.W. Bush used cap-and-trade to attack acid rain (very successfully) starting in 1990.

It would be a ghastly mistake to heed them.   

Posted in Economics / Read 2 Responses

Climate and the $3,100 Lie Detector

By Tony Kreindler / Published: May 7, 2009

How can you tell when a politician in Washington isn’t telling the truth? When they claim that the cost of capping carbon emissions and reducing foreign oil dependence will cost American families “$3,100.”

It’s become Talking Point Number One for opponents of action on climate change. Problem is, it’s entirely made up — so don’t get fooled. Ask where that number comes from.

The claim that carbon cap legislation proposed by Reps. Henry Waxman and Ed Markey will cost families “$3,100” was first made in a March press release from the National Republican Congressional Committee. The NRCC said its number was based an MIT analysis of cap and trade legislation.

Here’s what John Reilly, the author of the MIT study, told Politifact about the NRCC’s claim: “It’s just wrong. It’s wrong in so many ways it’s hard to begin.”

In two recent letters to House Republican Leader John Boehner, MIT’s Reilly asked that the NRCC stop using the “misleading” figure, noting that MIT’s estimates are less than one thirtieth of what the NRCC is claiming. “A correct estimate of that cost … for the average household just in 2015 is about $80 per family, or $65 if more appropriately stated in present value terms discounted at an annual 4% rate,” he said.

Reilly also pointed out that the MIT study is an “old analysis that is not well calibrated to either current legislative proposals or US economic conditions.” That’s important because the legislation now under debate in the House is expected to take further steps to ease cost impacts on consumers.

So why do Rep. Mike Pence and other opponents of cap and trade keep saying it will cost thousands? Either they are ignoring every credible analysis, or they’re very bad at math.

If they cite a study claiming astronomical costs, be sure to ask three key questions:

  1. Does the author of the study agree with the claims about their analysis?
  2. Does the analysis actually look at the current legislation under debate?
  3. What do the most recent, credible, and unbiased analyses say?

According to a new EPA analysis of the Waxman-Markey climate bill (the American Clean Energy and Security Act), an ambitious cap on carbon pollution can be met for as little as $98 per household per year over the life of the program – or about a dime a day per person.

In the early years the costs are even lower: Before 2012 it is zero — because the bill won’t have taken effect. By 2015, the costs “skyrocket” to 2 cents per person. Anyone who claims that now is the wrong time to cap carbon is engaging in scare tactics.

EPA’s analysis sets the gold standard by using two of the most credible, transparent, and peer-reviewed economic models available. It’s not a crystal ball, but it shows clearly that household costs will be modest under a well-designed cap and trade bill.

Also posted in Climate Change Legislation / Read 4 Responses

Green Jobs: Not Just Economic Projections

By David Yarnold / Published: April 17, 2009

Marc Gunther was kind enough to write a post on his blog about our latest campaign for a carbon cap.  Unfortunately, he also called the green jobs debate “intellectually dishonest.”  Below, Environmental Defense Fund’s Executive Director, David Yarnold, replies.

Marc,

Glad to see more attention to this issue as Congress gears up for its historic effort to pass a cap on carbon emissions. Opponents are hard at work to limit public debate to one side of the ledger; we’re shining the light on the other.

What we’re not doing is predicting the number of jobs a cap will create. Better yet, we’re showing the jobs that are here right now. We’re showing the people that want them, and businesses that are ready to create more of them when Congress caps carbon. You can see them for yourself at www.lesscarbonmorejobs.com

One of the thousands of companies you will find there is Dowding Machining, which is putting hundreds of laid-off autoworkers back to work building wind turbines in Michigan — the state with the highest unemployment rate in the nation. Mayor John Fetterman, featured in our ads, wants to do the same thing for steelworkers in Braddock, Pa.

How many jobs will we create? It’s up to us as a nation. Will we take the lead, revitalizing existing manufacturing industries and creating new ones? Or will we settle for the status quo, see our factories shuttered, and end up importing the low-carbon technologies of the future from China and Europe?

For years, the U.S. was the worlds leading producer of solar cells, but now we rank fourth in production behind Japan, China, and Germany. They’re not the sunniest of places; they’ve just made renewable energy a priority.

What will the costs be? The transition to clean energy will not be free – but every credible economic analysis shows that our economy will enjoy robust growth under a carbon cap. And contrary to opponents who spent a decade trying to muddy the science on climate change (and having failed that are now trying to muddy the economics), household costs will be small – about a dime a day for household utility bills, based on Department of Energy estimates. That dime buys a lot: cleaner air, good jobs, less foreign oil, and a safe climate.

Also posted in Climate Change Legislation, Energy, Jobs, News, Policy / Read 11 Responses

Links: How Many Bloggers and MIT Professors Does It Take to Correct a Number?

By Keith Gaby / Published: April 3, 2009

The House committee’s new draft bill was big news this week, but it threatens to be overshadowed by all the posts flying around about the misuse of a number by prominent Congressmen, notably Rep. John Boehner (R-Ohio) and Sen. Mitch McConnell (R-Ky.). Some of our favorite rebuttals:

And a shout-out to One Blue Marble, spotlighting what EDF’s Fred Krupp says about the costs of climate action, based on Department of Energy data:

The impact on household utility bills will be about a dime a day, and that dime will be the hardest working dime in America. It will create jobs, reduce our dangerous dependence on foreign oil, and protect the climate.

Also posted in What Others are Saying / Comments are closed

More Fuzzy Economics: Marshall Institute misrepresents costs of climate action

By Tony Kreindler / Published: March 11, 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.

Also posted in Policy / Comments are closed