Climate Bill: What's Hot? What's Not?
July 2, 2009
Climate Bill: What's Hot? What's Not?
Late Friday, the House passed the Waxman-Markey energy and climate bill, which President Obama said would "open the door to a clean energy economy." Congressional supporters say the historic measure would control U.S. global warming pollution, promote the use of green sources of energy and expand the nation's electric grid. However, critics contend that the legislation will increase energy costs across the nation and hurt the economy.
What are the best parts of the package? What changes should the Senate consider? What kind of impact is the bill likely to have on the American economy? Did House leaders give up too much to the agriculture and other business interests? Should the bill include tariffs on imports from countries that fail to adopt climate-change policies?
Responded on July 2, 2009 11:05 AM
Margo Thorning, Chief Economist, American Council for Capital Formation
Reduction of U.S. greenhouse gases is a worthy goal, but there’s very little to celebrate in the House passage of the Waxman-Markey bill. Try as they might, Congress simply cannot escape the laws of economics. Substituting more expensive energy for cleaner energy comes with a high price tag. Under a cap and trade system, higher prices for electricity, natural gas and other energy sectors will be passed on to consumers that can ill afford higher bills in this difficult economy.
The recent study released by CBO is seriously flawed. It underestimates the allowance price that will be needed and doesn’t a dynamic macro-economic model— thereby excluding significant loss in GDP and jobs. Oil refiners impacted by the harsh regulations of Waxman-Markey will end up importing more oil than they presently do, exacerbating our energy challenges.
One encouraging sign is President Obama’s reluctance to sign carbon tariffs on imports into law. Many experts say that BTA’s could pose a serious threat to the international trading system and could violate provisions of the WTO.
If policymakers conclude that a mandatory federal requirement to reduce greenhouse gases is in order, a carbon tax would be a more sensible alternative that would impose less economic pain than a cap and trade system. A carbon tax sets a price for a ton of emissions and allows the quantity of emissions to adjust to the level at which marginal abatement cost is equal to the level of the tax. Many experts conclude that there are substantial advantages to employing a tax on emissions rather than a cap and trade approach as it provides “where and when” flexibility for businesses and households trying to curb emissions.
Furthermore, technology development and transfer can play a key role in slowing the growth of GHGs. Improving U.S. cost recovery allowances for energy efficient and less emitting technologies and continuing to develop international programs like the Major Economies Initiative and others are cost effective approaches to improving the environment as well as strengthening the U.S. economy.
There are economically viable ways to reduce greenhouse gas emissions, but Waxman-Markey is not the vehicle to do so.