The Economic Impact Of Cap & Trade
I heard someone say not to long ago that the Obama administration could not ruin the economy any worse than Bush did........ Well, if this administration puts into motion the proposed cap & trade from the global warming, nut job lobbyists, it will definitely destroy what is left of our economy. Following is an article about a recent analysis done by David Kruetzer from the Heritage Foundation. If you want to view the charts and maps, click on the link below:
May 7, 2009
The Economic Impact of Cap and Trade
by David Kreutzer, Ph.D.
The Energy and Commerce Committee
U.S House of Representatives
April 22, 2009
My name is David Kreutzer. I am the Senior Policy Analyst in Energy Economics and Climate Change at The Heritage Foundation. The views I express in this testimony are my own, and should not be construed as representing any official position of The Heritage Foundation.
I want to thank the members of the Energy and Commerce Committee for this opportunity to address you concerning the economic impacts of cap-and-trade policies.
What Is the Problem with Carbon Dioxide (CO2)?
Carbon dioxide is not a toxin, is not directly harmful to human health, and is not projected to become so--even without legislative or regulatory action. CO2 is fundamental to all known forms of life. Indeed, studies show that increased CO2 levels are beneficial for crop production.
Nevertheless, driven by concern that increasing levels of CO2 (and other greenhouse gasses) will lead to a warmer world and cause environmental damage, there have been calls to significantly restrict emissions of all greenhouse gasses, but especially CO2. Among the proposals to reduce CO2 levels are carbon taxes and cap and trade.
The typical cap-and-trade proposal seeks to reduce CO2 emissions by 60 percent to 80 percent by 2050 where the comparison year is usually 2005. The Center for Data Analysis at The Heritage Foundation did an analysis of the costs of meeting the goals of the Lieberman-Warner bill, S. 2191, last spring. The report on this analysis is attached.
Our analytical models are not suited to making projections beyond 2030. Nevertheless, the economic impacts of this cap-and-trade program in just the first two decades were extraordinary. The estimated aggregate losses to Gross Domestic Product (GDP), adjusted for inflation, are $4.8 trillion. By 2029 the job losses in the manufacturing sector will be nearly 3 million. This is over and above the nearly one million manufacturing job losses that most economists predict will occur even in the absence of global-warming legislation.
The manufacturing job losses are shown in an attached chart taken from a study of an EPA mandated 70 percent cut in CO2. Also attached is a map showing the relative importance of manufacturing to a state's economy.
Some of the workers forced out of manufacturing will find employment in the service sector, but overall, the economy loses jobs. In some years, this overall job loss exceeds 800,000.
Note: Current law already has many provisions for curtailing CO2 emissions. They range from local renewable-portfolio mandates to increased nationwide Corporate Average Fuel Economy (CAFE) standards to subsidies for ethanol production. While the reductions in CO2 emissions are included for the purposes of meeting the emissions targets, the considerable cost of these programs is not included in our analysis. This is because the costs are attributable to existing legislation and will occur even without additional laws or regulations. Of course, if they were included, job and GDP loss totals would be even higher.
Why Is It So Costly?
Eighty-five percent of our energy use today is based on CO2-emitting fossil fuels. The ability to switch to non-CO2-emitting energy sources over the next 20 years is limited and expensive. Therefore, significant cuts in CO2 emissions require significant cuts in energy use. The energy cuts, in turn, reduce economic activity, shrink GDP, and destroy jobs.
The cap-and-trade schemes, as well as more straight-forward carbon taxes, limit emissions by making energy sufficiently more expensive that they cut their energy use. In addition to the direct impact on consumers' budgets for electricity, gasoline, heating oil, and natural gas, these higher energy costs force cutbacks on the production side of the economy and lead to lower output, employment, and income.
It is important to note that these losses occur after consumers, workers, and businesses have adjusted as well as they can to the higher energy costs. After adjusting for inflation, household energy prices will rise 29 percent above the business as usual prices, even though consumers will have switched to smaller cars, moved into more energy efficient houses, and made greater use of public transit. The lost comfort, convenience, and satisfaction of making these changes are not included in our calculation of economic impacts, though the costs would be very real.
Production drops even though firms will have adopted more energy efficient technologies and processes. To reiterate, the trillions of dollars of lost GDP and the hundreds of thousands of lost jobs occur even after homes and businesses have made the switch to greener methods. The hoped-for green-job gain is a mirage.
Attached is a copy of a page from a 1945 issue of Mechanix Illustrated. It shows a cyclist pedaling a jerry-built generator to power hair dryers in a Parisian beauty salon. Though not the sort of green job that is currently talked about, this human-powered generator illustrates why costly energy policies are not a stimulus.
A person on a bicycle generator would do very well to average 150 watts of output during a day. At this level, a modern-day cyclist/generator could produce electricity worth 10-15 cents per day at retail prices. With sufficient subsidies, people could be induced to power such generators and the proponents could then point to the "green" jobs that have been "created." What is not seen is the value of the cyclists' forgone output elsewhere. Even at minimum wage, the value of the labor is $52.40 per day. So each human-powered generator would shrink the economy by over $50 per day. This is not an economic stimulus.
Alternative energy schemes that require subsidies or that require protection from competing with conventional sources of power cannot be economic stimuli--their output is worth less than their inputs. An industry whose inputs cost more than its output is making the economy smaller and will necessarily reduce overall income.
Implementing a cap-and-trade program to cut emissions by 70 percent creates a transfer within the United States that is equivalent to taxes on the order of $250 billion to $300 billion per year, just for the years 2012 to 2030. The combined transfer is about $5 trillion in just the first 20 years. This takes the purchasing power from the households and turns it over to the federal government or to whomever the government assigns the rights to the permits for emissions (allowances). This would be one of the largest taxes in the economy--almost twice as large as the highway use taxes.
Because the transfer, in this case, is similar in magnitude to the lost GDP, we need to be clear on the distinction. A cap-and-trade program with an emissions reduction profile similar to that of last year's Lieberman-Warner bill, will cause an aggregate $5 trillion of transfers after it destroys $4.8 trillion of national income (GDP).
In colloquial terms, the pie gets smaller by nearly $5 trillion and then a $5 trillion piece is cut out and redistributed.
Cap-and-trade programs frequently include provisions to protect domestic industries from competition with firms in countries that have not adopted similarly costly mechanisms for reducing CO2. While the intent is certainly understandable, the provisions create the possibility of a protectionist wolf in global-warming clothes.
Putting these protectionist policies into operation is a bureaucratic nightmare. Every product from every country will need to be judged to determine the level of advantage it may have due to different carbon-cutting regimes. Since different countries can have different approaches and since different manufacturers can use different technologies and processes, assigning an offsetting CO2 tariff will necessarily involve arbitrary decisions. The potential for a trade war is very real.
Analysis by the Environmental Protection Agency (EPA) shows that a 60 percent reduction in CO2 emissions by 2050 will reduce CO2 concentrations by only 25 ppm in 2095. This reduction would affect world temperatures by 0.1 to 0.2 degrees C. In other words, it makes virtually no difference.
The Center for Data Analysis at The Heritage Foundation analyzed a proposal to cut CO2 emissions by 70 percent. Such a cut would have little impact on global temperatures. At best, the trade-off is trillions of dollars in lost income and hundreds of thousands of lost jobs versus a fraction of a degree change in average world temperature 85 years from now.
The Heritage Foundation is a public policy, research, and educational organization operating under Section 501(C)(3). It is privately supported, and receives no funds from any government at any level, nor does it perform any government or other contract work.
The Heritage Foundation is the most broadly supported think tank in the United States. During 2007, it had nearly 330,000 individual, foundation, and corporate supporters representing every state in the U.S. Its 2007 income came from the following sources:
Investment Income 28%
Publication Sales and Other 0%
The top five corporate givers provided The Heritage Foundation with 1.8% of its 2007 income. The Heritage Foundation's books are audited annually by the national accounting firm of McGladrey & Pullen. A list of major donors is available from The Heritage Foundation upon request.
Members of The Heritage Foundation staff testify as individuals discussing their own independent research. The views expressed are their own, and do not reflect an institutional position for The Heritage Foundation or its board of trustees.
William W. Beach et al., "The Economic Cost of the Lieberman-Warner Climate Change Legislation," Heritage Foundation Center for Data Analysis Report No. 08-02, May 12, 2008, at http://www.heritage.org/Research/
David W. Kreutzer and Karen A. Campbell, "CO2-Emissions Cuts: The Economic Costs of the EPA's ANPR Regulations," Heritage Foundation Center for Data Analysis Report No. 08-02, October 29, 2008, at http://www.heritage.org/Research/EnergyandEnvironment/
According to the EPA, Lieberman-Warner would lower CO2 emissions from 719 ppm to 694 ppm. See U.S. Environmental Protection Agency, Office of Atmospheric Programs, "EPA Analysis of the Lieberman-Warner Climate Security Act of 2008," updated on May 5, 2008, p. 192, at http://www.epa.gov/climatechange/dow...A_Analysis.pdf (May 3, 2009). Further, the IPCC says the most likely temperature response for each doubling of CO2 is 3 degrees C. The likely range is 2-4.5 degrees C for each doubling of CO2. These numbers are from the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, "Climate Change 2007: The Scientific Basis: Summary for Policy Makers," March 26, 2009, p. 21, at http://ipcc-wg1.ucar.edu/wg1/docs/WG1AR4_SPM_
PlenaryApproved.pdf (May 3, 2009).
Therefore, the EPA and IPCC numbers predict Lieberman-Warner's impact on world temperature would likely be between 0.1 and 0.23 of a degree, with the most likely difference being 0.15 of a degree C.
Not a toxin?
Carbon dioxide content in fresh air (averaged between sea-level and 10 hPa level, i.e. about 30 km altitude) varies between 0.036% (360 ppm) and 0.039% (390 ppm), depending on the location (see graphical map of CO2).
Prolonged exposure to moderate concentrations can cause acidosis and adverse effects on calcium phosphorus metabolism resulting in increased calcium deposits in soft tissue. Carbon dioxide is toxic to the heart and causes diminished contractile force.
Toxicity and its effects increase with the concentration of CO2, here given in volume percent of CO2 in the air:
* 1%, as can occur in a crowded auditorium with poor ventilation, can cause drowsiness with prolonged exposure.
* At 2% it is mildly narcotic and causes increased blood pressure and pulse rate, and causes reduced hearing.
* At about 5% it causes stimulation of the respiratory centre, dizziness, confusion and difficulty in breathing accompanied by headache and shortness of breath.
* At about 8% it causes headache, sweating, dim vision, tremor and loss of consciousness after exposure for between five and ten minutes.
A natural disaster linked to CO2 intoxication occurred during the limnic eruptions in the CO2-rich lakes of Monoun and Nyos in the Okun range of North-West Cameroon: the gas was brutally expelled from the mountain lakes and leaked into the surrounding valleys, killing most animal forms. During the Lake Nyos tragedy of 1988, 1700 villagers and 3500 livestock died.
Due to the health risks associated with carbon dioxide exposure, the U.S. Occupational Safety and Health Administration says that average exposure for healthy adults during an eight-hour work day should not exceed 5,000 ppm (0.5%). The maximum safe level for infants, children, the elderly and individuals with cardio-pulmonary health issues is significantly less. For short-term (under ten minutes) exposure, the U.S. National Institute for Occupational Safety and Health (NIOSH) and American Conference of Government Industrial Hygienists (ACGIH) limit is 30,000 ppm (3%). NIOSH also states that carbon dioxide concentrations exceeding 4% are immediately dangerous to life and health.
Adaptation to increased levels of CO2 occurs in humans. Continuous inhalation of CO2 can be tolerated at three percent inspired concentrations for at least one month and four percent inspired concentrations for over a week. It was suggested that 2.0 percent inspired concentrations could be used for closed air spaces (e.g. a submarine) since the adaptation is physiological and reversible. Decrement in performance or in normal physical activity does not happen at this level.
These figures are valid for pure carbon dioxide. In indoor spaces occupied by people the carbon dioxide concentration will reach higher levels than in pure outdoor air. Concentrations higher than 1,000 ppm will cause discomfort in more than 20% of occupants, and the discomfort will increase with increasing CO2 concentration. The discomfort will be caused by various gases coming from human respiration and perspiration, and not by CO2 itself. At 2,000 ppm the majority of occupants will feel a significant degree of discomfort, and many will develop nausea and headaches. The CO2 concentration between 300 and 2,500 ppm is used as an indicator of indoor air quality.
Acute carbon dioxide toxicity is sometimes known by the names given to it by miners: blackdamp (also called choke damp or stythe). Miners would try to alert themselves to dangerous levels of carbon dioxide in a mine shaft by bringing a caged canary with them as they worked. The canary would inevitably die before CO2 reached levels toxic to people.
Carbon dioxide ppm levels (CDPL) are a surrogate for measuring indoor pollutants that may cause occupants to grow drowsy, get headaches, or function at lower activity levels. To eliminate most indoor air quality complaints, total indoor CDPL must be reduced to below 600. NIOSH considers that indoor air concentrations that exceed 1,000 are a marker suggesting inadequate ventilation. ASHRAE recommends they not exceed 1,000 inside a space.
I read something about this a long time ago. From what I remember, it will literally double to triple the cost of our utilites in order to drop CO2 % in the air by a whopping .003%.
Carbon dioxide (the level in our atmosphere right now) is not a toxin, is not directly harmful to human health, and is not projected to become so--