United States Campaigns

Global Warming Economics

Over recent months, there have been several reports on the costs of legislation to reduce global warming pollution.  While no analysis can be 100 percent accurate in its predictions, legitimate economic modeling results are based on factual information and reported in an unbiased fashion.

However, some advocates have issued reports based on faulty information or have blatantly omitted facts.  The National Association of Manufacturers (NAM) and the American Council for Capital Formation (ACCF) have issued just such a report on the Lieberman-Warner Climate Security Act (S. 2191).  The NAM/ACCF economic analysis was even disputed and criticized by the Bush Administration's Energy Information Administration (EIA) for overstating costs associated with the bill.  Read more.

Other analyses, such as the one conducted by the Clean Air Task Force, report positive economic results, such as reduced electricity costs for consumers. Read the analysis (PDF)

Industry Modeling Casts Warped View of Lieberman-Warner Climate Bill(PDF)

Modeling performed for the American Council for Capital Formation (ACCF) and the National Association of Manufacturers (NAM)ⁱ shows a decline in GDP growth and jobs and an increase in consumer energy bills due to the Lieberman-Warner Climate Security Act (S. 2191).ⁱⁱ  But, their conclusions are based on incomplete or faulty input.  While presented as a full economic analysis of S.2191, the NAM/ACCF study considers only costs, and disregards benefits.  Also, the analysis:

• Assumes severe limits on American technological innovation and entrepreneurism with little to no affordable solutions emerging to reduce emissions.
  
  
• Fails to take into account the positive impacts of H.R.6, the Energy Independence and Security Act of 2007, passed into law last year.
  
  
• Neglects to include major aspects of the legislation that are structured to offset economic impacts and benefit consumers.

Questionable Industry Modeling Assumptions Include:

1. Severely Limiting American Innovation and Entrepreneurism
   
   
2. Ignoring 2007 Energy Bill Benefits, Creating Vague Baseline
   
   
3. Omitting Key Economic Protections of Lieberman-Warner Bill

1. Severely Limiting American Innovation and Entrepreneurism

Major Restrictions on Low-Carbon Energy Capacity
The ACCF/NAM modeling artificially constrains future employment of low-carbon energy options such as nuclear, wind, and solar power.  In reality, higher prices for carbon-based energy would lead to increased demand for these options.  For example, the Department of Energy's business as usual scenario assumes greater new nuclear capacity than ACCF/NAM does with the legislation.  By limiting technological innovation and the use of low-carbon energy, the modeling leaves only one way to meet the carbon cap: a dramatic cut in energy use in response to unrealistically high energy prices, which then slashes economic productivity.

Unrealistic Limitations on Coal Generation
Coal is treated in a manner different than the bill prescribes, leading to double-counting of increased coal costs. Combined with restrictions on integrated gasification combined cycle (IGCC) power development (an advanced method that turns coal into a cleaner-burning gas), this leads to very little use of coal in the model.

Hampering or Cutting Key Cost-Saving Tools
Under the Lieberman-Warner bill, companies can cut compliance costs by saving—or banking—relatively cheap pollution permits for later use when the price of buying new permits is higher.  S. 2191 allows unlimited banking, but the ACCF/NAM analysis allows none.

Also, companies are allowed by the bill to meet some of their emissions requirements by financing pollution reductions in sectors not covered by the bill, or internationally.  But, the modeling limits credits from some alternative projects to levels below those in the bill.  These two changes have significant impacts on the bill’s cost-effectiveness for industry.

2. Ignoring 2007 Energy Bill Benefits, Creating Vague Baseline

In December, Congress passed and the President signed into law H.R.6, the Energy Independence and Security Act of 2007.  This bill contained measures that will save consumers money at the gas pump, give a significant boost to energy efficiency and renewable energy, and promote alternative fuels.  All measures will work to lower U.S. global warming pollution and make cleaner energy more available and affordable.  In other words, the energy bill should make cutting emissions under S. 2191 easier and cheaper.  However, ACCF/NAM modeling excludes key elements of the Energy Independence and Security Act.  In fact, any features that are included are not identified. 

In addition, the ACCF/NAM model’s "business as usual" scenario uses an unexplained and unconventional hybrid of two different Department of Energy forecasts, even though they differ greatly on economic growth projections.  And, as criticized by the Energy Information Administration, the model incorrectly assigns costs from increasing world oil prices to S.2191, when they should be part of the baseline scenario.ⁱⁱⁱ  Such a muddled baseline alone should call any results of their policy analysis into question.

3. Omitting Key Economic Protections of Lieberman-Warner Bill
In addition to problematic modeling assumptions, the ACCF/NAM analysis omits key features of the Lieberman-Warner bill, including the significant funds derived from direct allocation or auctioning of pollution permits.  These funds will drive cleaner technology development, compensate for higher energy prices, and spur energy efficiency.  Specifically, omissions include:

Significant incentives in S. 2191 for:

• energy efficiency – up to $242 billion for residential programs by 2030
  
  
• renewable energy – $126 billion for the deployment of renewable energy by 2030
  
  
• carbon capture and sequestration – $214 billion by 2030
  
  
• zero and low carbon technology – $161 billion by 2030

Safety net provisions for low- and middle-income consumers

• $242 billion in rebates and energy efficiency programs by 2030
  
  
• $178 billion in energy assistance programs by 2030

Economic relief from the Carbon Market Efficiency Board.

• While it is very difficult to model the results of the Board's future actions, the Board is being established to protect the economy from the kind of high allowance prices assumed by ACCF/NAM.