January 2012

The National Black Chamber of Commerce (NBCC) today released a study by Charles River Associates (CRA) on the economic impacts of H.R. 2454, the American Clean Energy and Security Act of 2009 (ACESA), the regulatory climate bill sponsored by Rep. Henry Waxman (D-CA) and Ed Markey (D-MA).

The results aren’t pretty, and they generally get worse over time as the Act’s emission caps tighten. Relative to baseline levels, ACESA would:

• Reduce employment by 2.3 million jobs in 2015, 2.7 million jobs in 2020, 2.5 million jobs in 2030, and 3 million jobs in 2050;
• Lower average annual wages by $170 in 2015, $270 in 2020, $400 in 2030, and $960 in 2050; and,
• Decrease average household purchasing power by $730 in 2015, $800 in 2020, $830 in 2030, and $940 in 2050.

More valuable than any of these estimates, which depend on many variables that can change unpredictably, is the report’s clear economic logic and common sense.

The report specifically debunks two myths propagated by ACESA proponents. One is that there would be virtually no cost to consumers because (a) utilities would receive lots of free emission allowances, avoiding costs they would otherwise pass on to ratepayers, and (b) revenues from auctioned allowances would be returned as dividends to low-income households.

What this myth overlooks is that emission caps inescapably–and by design–increase the cost of producing and consuming energy. The “cap” in cap-and-trade “works”–that is, reduces emissions–by creating an artificial scarcity in the right to produce and use fossil (carbon-emitting) energy. This drives up the price of coal, oil, and natural gas. It also increases reliance on higher-cost non-fossil energy. 

About 85% of our total energy is carbon-emitting, and about 99% of all transport sector energy is carbon-emitting. Since energy is used to produce and move everything from autos to food to houses to bytes of electronic information, ACESA’s impacts would cascade through the economy. In the report’s words:

This analysis reveals that businesses and consumers would face higher energy and transportation costs under ACESA, which would lead to increased costs of other goods and services throughout the economy. As the costs of goods and services rise, household disposable income and household consumption would fall. Wages and returns on investment would also fall, resulting in lower productivity growth and reduce employment opportunities. 

Although free allocations and revenue recycling can ameliorate the impacts of cap-and-trade on some industries, communities, or income groups, “the cost of bringing emissions down to the levels required by the caps cannot be avoided.”

Proponents also claim ACESA can revive the economy by creating millions of “green jobs.” The CRA study agrees that ACESA would lead to “increases in spending on energy efficiency and renewable energy, and as a result that significant numbers of people would be employed in ‘green jobs’ that would not exist in a no carbon policy world.” However, proponents ignore both the fossil energy-related jobs ACESA would destroy and other job losses due to rising energy costs and lower productivity:

This study finds that even after accounting for green jobs, there is a substantial and long-term net reduction in total labor earnings and employment. This is the unintended but predictable consequence of investing to create a “green energy future.”

Several other findings are noteworthy:

• Declines in employment are heavier in the Mountain West (-3.5%), Great Plains (-1.4%), Oklahoma and Texas (-1.8%), Missiippie Valley (-1.5%), Mid-Atlantic (-1.3%), Southeast (-1.1%), and Midwest (-0.6%)  than in California (-0.4%) and Northeast (-0.3%). ”The Northeast and California fare better than other regions because of their initial economic circumstances. Namely, these regions’ industries are less energy-intensive, as is hte overall composition of industry.” By sheer coincidence (not), the bill’s co-sponsors, Henry Waxman and Ed Markey hail from California and the Northeast.
• The bill’s renewable electricity and energy efficiency mandates  make neither economic nor environmental sense even if we assume that global warming is a “planetary emergency.”  The rationale for cap-and-trade is that it allows the market to find the least-cost methods of reducing emissions. By superimposing a system of renewable electricity and energy efficiency mandates on that system, ACESA would dictate the means as well as the goals. There are two possibilities. If, by coincidence, the cap itself motivated all of the actions required to comply with those mandates, then the mandates “would waste resources on needless monitoring, measuring, enforcement and compliance.” If, as is more likely, the mandates compel industry to buy more renewable energy or invest more in efficiency upgrades than it otherwise would to comply with the cap, the total emissions reduced would not change but industry’s (hence consumers’) costs would be higher. The renewable electricity and energy efficiency mandates “can only substitute more costly GHG cuts for those that could have been made at lower cost.”
• The economic impacts estimated in the report are conservative because they make a very favorable assumption in favor of ACESA, namely, that domestic industries would be able to exceed the cap by about 30% during 2012-2050 by purchasing international offsets (e.g. payments to preserve forests in development countries). Access to international offsets are especially important to cost-containment in ACESA’s early phase, totalling 83% of the required emission “reductions” in 2015. “However, in light of the difficulties in measuring, verifying, and ensuring the permanence of these offsets, international negotiations have stressed domestic sources of emission reductions over international offsets.” The Kyoto II treaty that will be negotiated in Copenhagen “might allow far fewer” offsets than ACESA would provide. ”This would drive up costs substantially.”