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Which economic analysis of the proposed carbon cap and trade bills do you find most plausible?
Climate and energy bills involving carbon cap and trade systems have been proposed by the US House (Waxman-Markey [WM]) and Senate (Kerry-Lieberman [KM]). Numerous economic analyses of these bills have been performed, as summarized below.
Congressional Budget Office (CBO): WM will cost about $175 per household in 2020, and those “in the lowest income quintile would see an average net benefit of about $40 in 2020. The estimate “does not include the economic benefits and other benefits of the reduction in GHG emissions and the associated slowing of climate change." CBO’s estimate also does not include the economic benefits of other provisions in WM.
http://www.cbo.gov/ftpdocs/103xx/doc10327/06-19-CapAndTradeCosts.pdf
American Council for an Energy Efficient Economy (ACEEE): estimates that the WM efficiency provisions alone could save businesses and consumers $22 billion ($170 per household) annually by 2020, and that the net savings of the bill’s provisions not included in the CBO estimate would more than make up for the estimated cost.
http://www.aceee.org/energy/national/National_Summary_ACES.pdf
Energy Information Administration (EIA) on WM: the average cost to households from 2012 to 2030 (discounted) is $83.
http://www.eia.doe.gov/oiaf/servicerpt/hr2454/pdf/sroiaf%282009%2905.pdf
EPA on WM: $80-111 per year per average family.
http://www.epa.gov/climatechange/economics/pdfs/HR2454_Analysis.pdf
EPA on KL: $79-146 per year per average family.
http://www.epa.gov/climatechange/economics/pdfs/EPA_APA_Analysis_6-14-10.pdf
Peterson Institute on KL: "In our analysis, households see somewhere between a $136 increase and a $35 dollar decrease in annual energy expenditures, depending on future improvements in vehicle efficiency"
http://www.piie.com/publications/pb/pb10-12.pdf
Heritage Foundation: WM "Will Cost American Families Over $3,000 a Year" (per family of 4)
http://www.heritage.org/Research/Factsheets/Waxman-Markey-Global-Warming-Tax-Kills-More-Jobs-and-Kills-the-Economy
Institute for Energy Research on KL: "Households would face a gross annual burden of $125.9 billion per year or $1,042 per household,"
http://www.instituteforenergyresearch.org/2010/06/30/new-study-kerry-lieberman-to-destroy-up-to-5-1-million-jobs-cost-families-1042-per-year-wealthiest-americans-to-benefit/
So basically 3 government analyses put the cost at somewhere between a modest net gain for consumers, and a $175 per family (about $60 per person) per year net cost. You also have 2 oil-industry-funded organizations (Heritage Foundation has received over $630,000 and Institute for Energy Research has received $307,000 from ExxonMobil since 1998), which put the net cost at $1000-3000 per family.
If you don’t trust government or oil-funded analyses, the only alternative I found was the Peterson Institute for International Economics which "is a private, nonprofit, nonpartisan research institution devoted to the study of international economic policy." If you look at their climate change page, they don’t seem to have any particular dog in this race.
http://www.iie.com/research/topics/hottopic.cfm?HotTopicID=16
Their analysis is consistent with the CBO, EIA, and EPA at between a modest net gain for households ($35 per year) and a net cost of $136 per year. Which economic analysis of the proposed carbon cap and trade bills do you find most plausible?
Deniers, I ask that you either answer the question or don’t bother ‘answering’ at all. The question is about the cost of the proposed legislation in the USA.
Thanks Dana, for the summary. Generally I like to take the middle course when experts disagree, and discount the opinions of industry "experts" with an economic interest. If I read correctly, that puts me in the modest cost per family camp.
13 Responses to “Which economic analysis of the proposed carbon cap and trade bills do you find most plausible?”
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July 16th, 2010 at 1:43 pm
Thanks Dana, for the summary. Generally I like to take the middle course when experts disagree, and discount the opinions of industry "experts" with an economic interest. If I read correctly, that puts me in the modest cost per family camp.
References :
July 16th, 2010 at 2:30 pm
The Devil is always in the details! Depending on respective assumptions all, or none, may be accurate.
If you do not see income redistribution as a problem in an economic analysis, then I am sure that the CBO estimates are close + or – 300% but I trust what I see already happening in the economy and the "little" hidden taxes that already are happening.
In my personal household budgeting, I already include electrical costs to increase 300% by 2020. My current Utility bill already runs about $2850 per year on average and I estimate that it will be $7332 per year by 2020. That is $5500 per year just in the electrical component and its associated usurious municipal addons such as access fees. This stems largely from the overbuilds of Transmission lines that are required to accommodate intermittent sources such as Wind Power.
Now if I suppose that half the people paying these fees pay a similar amount and would be ineligible for government subsidies based on income, and the other half are all eligible for subsidies because of their economic insufficiency, then I guess the "average" cost is NOTHING! The only question remaining is…why would I (and the others that are getting taxed) choose to subject myself to this ultra socialist BS??
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July 16th, 2010 at 2:42 pm
Well, as the area where I live will have the highest carbon tax in North America on gasoline, 7 cents per litre, if you fill up twice a month (Roughly 20 litres of gas), you will have to pay $240 per year on gas taxes alone. However, this tax is revenue neutral meaning you will get it back when you receive your tax return. I also get a biannual hydro bill which I have to pay a tax for clean energy that amounts to less than a dollar every two months. This costs a massive 6 dollars a year. Then again I live in an area where we get over 90% of our energy from renewable resources so other areas may see a higher tax implemented. Of course this does not take into account the rise in price of products as a response to the revenue neutral carbon tax. I’m not exactly to sure how much they would increase but, as the carbon tax is revenue neutral, probably very little. In all I’d estimate the total cost to be on the low end of the numbers.
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July 16th, 2010 at 3:19 pm
I believe in some of the worlds top economists including some noble prize winners who say the conforming to the less stringent Kyoto accord targets, (forget about the current 80% target) is way too costly and resources can be spend on better things.
http://www.copenhagenconsensus.com/CCC%20Home%20Page.aspx
The assumption that many are making that a small rise in energy prices will lead to innovation and reduce energy costs more is wishing thinking and a fairy tale. Look at hybrid cars. The price has not come down that much. They are more fuel efficient but the extra capital costs required to purchase them makes them uneconomical for most people.
Edit: Sorry, I have better things to do with my time than read 60 page reports from the different groups. If you want us to comment provide page numbers as well. As someone who went to University you should know better.
From previous questions I know that these groups are making assumptions that economies of scale and innovation will lead to reduce costs for green technologies. I gave you an example that is not happening with hybrids. Solar panels require silicone, which is also not a unlimited resource. As demand for silicone increases so will its price, which will drive up, not down, the cost of solar panels.
Take away this fantasy assumption their analysis is wrong and this cap and trade bill will do nothing to reduce co2 emissions. The true cost of reducing co2 emissions by 80% world wide is in the trillions of dollars. This according to some of the worlds top economists.
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July 16th, 2010 at 4:03 pm
Dana, when was the last time any government estimate actually came in BELOW budget? Can you name even one in the last 40 years?
Most miss their estimated costs by 100% or more.
Anytime you add a tax to the cost of production the final consumer pays for it!
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July 16th, 2010 at 4:38 pm
I object to the premise of your question, Dana. The research implies the current cap and trade legislation will be the end of it. But you and I know very well that is not the true goal of the current administration. Their true goal is to tax the coal and oil industries out of existence. Obama himself said so explicitly on the campaign trail.
Do you really believe that Obama and his ilk will be satisfied once this round of cap and trade legislation is in place? "Oh but it’s only another $25 per household, etc."
It doesn’t take a highly educated policy analyst to see what’s going to happen. Cap and trade WILL make energy more expensive in the U.S. And that will drive our remaining heavy industry over to China which has no problem building as many coal fired power plants as it needs to feed its ever growing industrial base. On a global scale, we will be trading reasonably efficient manufacturing for the cheapest way possible, don’t give a damn about the environment manufacturing. And destroy our economy in the process.
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July 16th, 2010 at 4:46 pm
I would agree with Bad Moon Rising where he/she said that the ‘devil is in the details’. Take the first analysis from the Congressional Budget Office (CBO) as an example – it sounds like they don’t even know how much GHG emissions it will reduce or how much of global warming this will stop! Isn’t this supposed to be the point of Cap and Trade?
When it comes to these costings, I personally take them with a grain of salt. Sure, it can be nice to ponder over what the costs COULD be but what reality delivers can be very different. In fact, I believe the costs are going to be high. Electricity prices alone where I live is creeping up and up without an ETS even implemented yet. Many of the reasons are just sounding like they are trying to squeeze as many pennies from the people as they can. I even know a few people on my street that are having to walk around in the dark at their houses now to be able to pay the bills…
Anyway, I thought I would comment on your response to the previous question about Cap and Trade. I couldn’t really respond on the weekend because I was busy but basically what you suggested has taken my arguments taken out of context. I NEVER claimed that because Copenhagen failed we should just give up and do nothing, only that just based off of that event it seems unlikely binding global agreements would occur. I also said that if catastrophic global warming is true then binding global agreements is what is required……isn’t it? Not just some nations here and there implementing something like Cap and Trade. Finally, while I did comment on investing in renewable energy, claiming that Cap and Trade invests effectively in renewable energy and the schemes usefulness is very debatable. I’ve touched upon issues of how money has been wasted and this is an area which could have been used to invest in renewable technologies….
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