Economic Pain Of Carbon Cuts Will Be Global

Investor's Business Daily
By Don Nickles and Charles Stenholm
April 14, 2008

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The political debate over climate change has advanced rapidly in recent years, and there is now tremendous pressure to reduce carbon emissions from U.S. industrial activity.

Unfortunately, the economic debate over the cost of attempting to achieve such reductions has gotten little attention despite the direct financial impact it will have on all our nation's citizens.

As the country teeters on the brink of a recession, it is even more imperative to have a frank conversation on the cost of potential actions set for debate in Congress and who will shoulder the burden.

The Senate will soon consider legislation, sponsored by Joseph Lieberman, I-Conn., and John Warner, R-Va., that would institute a cap-and-trade system for emissions of greenhouse gases. This program would set a limit on the amount of carbon dioxide and other emissions from economic activity that many link to climate change. Firms and industries that cut their emissions below a preset level would be able to trade credits to firms or industries that cannot meet their targets.

Any economist will tell you that if you want less of something, the best thing to do is tax it. A cap-and-trade program serves as a tax on emissions to reduce them. Make no mistake, that's what the proposed program is: a hidden tax on the use of energy.

The program's supporters point out that a cap-and-trade program is a form of market-friendly regulation since it utilizes a market mechanism - trading. This is true so far as it goes, but for there to be reductions in emissions, the taxing effect must kick in for the program to work. If the program amounts to a tax, the relevant questions for policymakers are: How big a tax is it? Who will pay for it? This again is where the economic debate has lagged the political debate.

In a recent study assessing the economic impact of the Lieberman-Warner bill, commissioned by the American Council for Capital Formation and the National Association of Manufacturers, findings highlighted the profound eco nomic impact the legislation would have on businesses, consumers and governments nationally and in all 50 states. A sampling includes:

• GDP losses of $151 billion to $210 billion in 2020 and $631 billion to $669 billion in 2030.
  
  
• Employment losses of 1.2 million to 1.8 million jobs in 2020 and 3 million to 4 million jobs in 2030.
  
  
• Household income losses of $739 to $2,927 per year in 2020 and $4,022 to $6,752 per year in 2030.
  
  
• Electricity price increases of 28% to 33% by 2020 and 101% to 129% by 2030.
  
  
• Gasoline price increases (per gallon) of 20% to 69% by 2020 and 77% to 145% by 2030.
  
  
• Low-income families (average incomes less than $18,500) and those on fixed incomes, including many seniors, would spend 19% to 22% of their total income on energy costs by 2020 as a result of the proposed legislation.

Some argue such costs would be worth it if the environmental benefits were significant enough.When viewed in a global context, however, this does not seem likely. Any commitment to curb energy emissions on our part will most likely be offset by emissions from rapidly growing nations such as China and India. China recently passed the U.S. in total emissions.

While one can argue that developed nations must lead the way on climate change action, we must be honest about the expected worldwide impact - in terms of the environmental effectiveness and economic pain - such policies will have.

Whatever the good intentions of our legislative actions, large developing nations will not sacrifice their economic growth due to concerns about climate change.Their present challenges are too severe and opportunities too immediate to trump concerns about climate change. They hope to attain the standards of living we enjoy in the developed world, standards that we built through the industrial use of fossil fuels.

So even if we agree to curb emissions at high economic cost domestically, without a guarantee from other countries around the globe, any environmental benefit will be effectively undermined.

The concerns of those hoping to curb carbon emissions are understandable and worthy of respect. But so are the economic needs of those who will be harmed by costly, overly aggressive mitigation efforts.

We cannot have an honest discussion about tackling climate change until we deal honestly with the inconvenient economic truths at stake. We respectfully urge our former colleagues to consider these important issues as they debate climate policies in the near future.

Nickles, a Republican from Oklahoma, served in the Senate from 1981 to 2005. Stenholm, a Democrat from Texas, served in the House from 1979-2005. Both are members of the American Council of Capital Formation’s board of directors.