The Cost of Global Warming Legislation

For the sake of argument, let’s accept that it is worth doing whatever is possible in order to reduce carbon emissions by whatever amount we’re able, regardless of estimated minimal effect on the rise in global temperatures.  As noted in an earlier article, Actual Effects of Global Warming Legislation on Temperature, ceasing all carbon-emitting activity would result in an immediate decrease in temperature of 0.152°C, while the Waxman-Markey climate bill would save us between .112°C and .195°C by 2100.

Here, then, is an investigation of the costs that would be required in order to achieve those minimal reductions in temperature increase.

According to economists, the cost of carbon emissions reduction is about $500 per ton of CO2.  If the US were to completely eliminate all carbon emissions immediately, this would amount to $2.9 trillion, or $25,000 for each American household annually.  This is, of course, a completely unrealistic scenario (although Waxman-Markey does require an 83% reduction in 2005 levels by 2050).

A system of cap and trade would attempt to use bastardized free-market principles by manipulating supply and demand through artificial limits on supply in order to “naturally” decrease demand.  The hope (there’s that word again) is that this would spur development of new energy sources and allow them to become economically viable.  Nevertheless, this is a costly proposition.

Most economists believe that a carbon tax would be much more efficient, but politicians know it would never be viable politically – their jobs are already at substantial risk even without anymore new taxes.  The alternative is to implement a cap and trade system, which has the same effect as a tax without using that undesirable word.

Taking the Obama administration at its word and using its own analysis (which, by the way, had to be pried out of the hands of “the most open and transparent [administration] in history”), the cost would be $200 billionyearly, or up to $1,761 per American household each year.  This would be the equivalent of increasing personal income taxes by about 15 percent, and make no mistake – a tax is a tax is a tax.

According to our president, costs under his proposed plan “will necessarily skyrocket” and increased costs will be “passed on to consumers.”

The administration claims that with all emission allowances being auctioned, “a cap-and-trade program could generate federal receipts in the order of $100 to $200 billion annually.”

The administration, though, has already promised up to 85 percent of the permits for free to friends of the legislation (and administration?).  If the buying of votes we saw with the Senate health care bill is any indication, the remaining 15 percent will soon be gone as well.   

According to The Heritage Foundation,

In our analysis, the higher energy costs kick in as soon as the bill’s provisions take effect in 2012. For a household of four, energy costs go up $436 that year, and they eventually reach over $1,241 in 2035 and average $829 per year over that span. Electricity costs go up $468, gasoline goes up $565, and natural gas goes up $161 by 2035. That’s a 58 percent increase in gas prices, 90 percent for electricity, and 55 percent for natural gas. Cumulative higher energy costs for a household of four from 2012-2035 would reach nearly $20,000.

As if this weren’t bad enough, these estimates of increased costs only include direct costs, not additional expenses which would be inherent in a new economy under cap and trade.  Of course, production costs increase whenever we see rising energy costs, and this would be no exception.  Increased production costs would impact the average family of four to the tune of $2,979 annually.

The projected impact on employment is significant and the probability of high levels of job loss directly related to a cap-and-trade system is profound, particularly in an economy already struggling to recover a portion of the 7.2 million jobs lost since 2007.  Net job losses are estimated at approximately 1.145 million, even when the creation of new green jobs is taken into account.

According to a newly released study on the impact of clean energy policies over a 20 year period in Germany, “Significant research shows that initial employment benefits from renewable policies soon turn negative as additional costs are incurred.”  The existence of renewable-energy jobs in Germany has also been found to be completely dependent on government support, and subsidization is as high as US $240,000 per worker.  This, again, is after nearly 20 years of development.

The Obama administration was informed that, with regard to such climate change policies, “Economic costs will likely be on the order of 1 percent of GDP, making them equal in scale to all existing environmental regulation.”  The Heritage Foundation has also estimated that overall GDP losses will average $491 billion per year from 2012 through 2035, resulting in a total GDP loss of $9.4 trillion during that period.

The German study also found that because more workers are needed to produce a given amount of energy in a green economy than is necessary with traditional energy production, the output potential of the overall economy is diminished, which in turn leads to lower net job creation.

There is also significant risk that countries such as China, India, and Vietnam aren’t willing to substantially curb their economic growth in exchange for feel-good (but do little) greenhouse gas emissions cuts.  The net result of our passing this legislation without developing countries curbing their outputs as well is that our decrease in GDP could potentially be much greater than estimated as jobs shift overseas to those countries that don’t tax greenhouse gases.

There are myriad problems with a cap and trade system, not the least of which is that it will do very little to actually impact temperature, while significantly burdening the average American worker.  Is it really worth so much to do so little?

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