Dr. Margo Thorning Testifies on the Impact of Proposals to Cap Carbon Emissions

American Council for Capital Formation
June 2003

ACCF Chief Economist Dr. Margo Thorning testified before the Senate Environmental and Public Works Subcommittee on Clean Air, Climate Change and Nuclear Safety June 5, 2003. Dr. Thorning described the potential impact of the Clear Skies Act of 2003 and proposals to cap power plant carbon emissions, such as those put forward by Senator James Jeffords (I-VT), on the financial helath and vitality of the utility sector. (Photo L-R: Dr. Margo Thorning; Chairman George V. Voinovich R-OH and Dr. Thorning; Senate Environment and Public Works Committee Chairman James M. Inhofe R-OK and Dr. Thorning.)

Dr. Thorning also highlighted the threat that rising energy prices pose for the U.S. economy. In the colloquy below, Dr. Thorning and Subcommittee Chairman George V. Voinovich agree that higher energy prices are a "major problem." [Photo L-R: Dr. Margo Thorning; Chairman George V. Voinovich (R-OH) and Dr. Thorning; Senate Environment and Public Works Chairman James M. Inhofe (R-OK) and Dr. Thorning.

Read the Full Testimony (PDF)

June 5, 2003

ACCF Chief Economist Dr. Margo Thorning described the impact a CO2 cap would have on natural gas prices in her testimony on energy sector issues before the Senate Environment and Public Works Subcommittee on Clean Air, Climate Change and Nuclear Safety on June 5, 2003. The Subommittee distributed the following colloquy between Chairman George V. Voinovich and Dr. Thorning to those interested in the topics discussed at the hearing.

Sen. Voinovich: Dr. Thorning, we've heard several of the witnesses talk about the need to place a cap on CO2 emissions to help the industry. However, if a cap is placed on CO2 emissions, utilities, from what I understand, will be forced to fuel switch away from low cost, abundant and reliable coal to natural gas. As I'm sure you know, natural gas prices will only continue to increase as pressure becomes increasingly greater already in a tight market. How have the increased natural gas prices over the past few years affected companies in other sectors, such as the chemical and agriculture industries' ability to invest in the market in general, and has it affected utilities that rely primarily on natural gas for their generation?

Ms. Thorning: That's an excellent question, Mr. Chairman, and I think most of the people in this room know that with respect to the higher natural gas prices, our chemical industry has been adversely affected, fertilizers, others that are dependent on gas have been very hard hit and faced reduced competitiveness, not only at home but globally. So it's been a very hard hit in terms of trying to maintain competitiveness. The issue of placing carbon caps, which presumably would encourage fuel switching, is one that I think a lot of research shows would significantly increase natural gas prices and make it ever more difficult for the U.S. economy to recover from its current slow growth.

Senator Voinovich: It is a major problem.

Ms. Thorning: It is a major problem.

Senator Voinovich: Is it affecting the stock prices of any of the companies that are highly reliant, for example, the chemical industry?

Ms. Thorning: Certainly it is. Stock prices have taken a very hard hit in the energy intensive sector. The surge in gas prices is certainly part of it.