House Energy and Environment Testimony: Competitiveness and the Climate Change Policy
Avoiding Leakage of Jobs and Emissions
March 18, 2009
Competitiveness and the Climate Change Policy: Avoiding Leakage of
Jobs and Emissions
By:
Margo Thorning, Ph.D.
Senior Vice President and Chief Economist
American Council for Capital Formation
Before the Subcommittee on Energy and Environment
Committee on Energy and Commerce
U.S. House of Representatives
March 18, 2009
Executive Summary
Impact of Climate Change Policy on the U.S. Economy and Competitiveness
Recent private and government analyses of the impact of cap and trade proposals such as the Lieberman-Warner bill (S.2191), which sets targets to reduce GHGs to 15 percent below 2005 levels by 2020 and to 70 percent below by 2050, show that there are likely to be significant adverse consequences for the U.S. economy and job growth. Higher energy prices slow economic growth. An ACCF/NAM study shows that GDP declines by as much as 1 percent in 2020 and by up to 2.7 percent in 2030. Total U.S. employment (net of new jobs created in green industries) declines by 1,210,000 to 1,800.000 jobs in 2020 and by as many as 4,100,000 in 2030, compared to the baseline forecast.
Obama Administration Climate Change Proposal: Impact on the U.S. Economy
The climate change plan outlined in the Administration’s FY 2010 budget sets a target of 14 percent below 2005 levels by 2020 and 83 percent below by 2050 with 100 percent auctioning from the beginning. The Administration appears to expect the price of a carbon allowance to be approximately $13 to $16 dollars per ton of CO2 and that its cap and trade proposal would yield $675 billion over the 2012-2019. Based on the various studies cited above, the estimated payments to the Federal government for carbon permits seem far too low.
Role of Border Tax Adjustments in Addressing Competitiveness and Leakage from U.S. Climate Change Policy
While some policymakers suggest that combining a U.S. climate change proposal with import restrictions (called Border Tax Adjustments or BTA’s) could reduce the U.S. job loss and emission leakage from higher energy prices, others experts say that BTA’s would pose a serious threat to the international trading system and could violate provisions of the WTO.
Strategies to Reduce Global and U.S. GHG Emission Growth
Two initiatives, a cap and trade approach and a tax on carbon emissions are currently receiving support from policymakers. A cap and trade system puts an absolute restriction on the quantity of emissions allowed (i.e., the cap) and allows the price of emissions to adjust to the marginal abatement cost (i.e., the cost of controlling a unit of emissions). A carbon tax, in contrast, 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.
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.