March 20, 2009 | Commentary on Energy and Environment, Regulation

On the Front Burner No More: Why Economic Downturn Makes Global Warming Legislation Unlikely

There is little doubt that legislation to address global warming will be very expensive. Nonetheless, many had thought it to be inevitable in 2009. President Obama supports it, as do most Congressional Democrats, who have expanded their majorities in the House and Senate. But the weakening economy has changed the political landscape nearly as much as the elections themselves, and it has reduced the prospects for major climate change action this year. If so, the respite would be a real silver lining to the economic downturn, as the so-called cap and trade measures currently under consideration are likely to do far more harm than good. Moreover, the recession should provide time for a serious reevaluation of the federal government's flawed approach to the issue.

The Leading Options To Address Global Warming

Concern that carbon dioxide emissions from fossil fuel combustion are gradually warming the planet has emerged as the major environmental issue of the day. Though the science is not settled, as some claim, many in Congress consider it settled enough that they have moved on to debating proposals to reduce those emissions.

The only global warming bill to get serious consideration in 2008 was the America's Climate Security Act in the Senate. This legislation, sponsored by Senators Barbara Boxer (D-CA), Joe Lieberman (I-CT), and John Warner (R-VA), was a so-called cap and trade bill. Under it, greenhouse gas emissions from regulated entities would be capped at 2005 levels beginning in 2012. Each electric power plant, refinery, factory, and other regulated entity would be allocated rights to emit specified amounts of carbon dioxide. Those entities that reduce their emissions below their annual allotment can sell their excess rights to those who do not -- the trade part of cap and trade. Over time, the cap would be ratcheted down until a 70 percent reduction below 2005 levels is reached in 2050 -- essentially energy rationing.

Carbon dioxide is the ubiquitous and unavoidable byproduct of fossil fuel combustion -- the coal, oil, and natural gas that currently provide 85 percent of America's energy. Thus, any effort to substantially curtail such emissions would have costly and disruptive effects throughout the economy and an adverse impact on living standards.

In effect, a cap and trade bill works like an energy tax because it drives up the cost of fossil fuels so that individuals and businesses are forced to use less of them.

Senate debate over the America's Climate Security Act commenced last June, just as gasoline was beginning to reach $4.00 a gallon across the country. The Heritage Foundation estimated that the bill would increase gasoline prices by approximately 29 percent by 2030.[1] Even proponents of the bill had to admit that their efforts would likely lead to higher pump prices. Not surprisingly, the public anger over $4.00 gas was a big factor in sinking the bill, which was withdrawn after only 3 days of debate.

In addition to gasoline, the expected impact of the bill on other energy sources including electricity (70 percent of which is derived from coal or natural gas) was even more significant. The overall cost to the economy of more expensive energy was estimated by The Heritage Foundation to be between $1.7 trillion and $4.8 trillion in cumulative gross domestic product (GDP) losses by 2030.[2] The estimates in this analysis were roughly similar to those from the Massachusetts Institute of Technology, Environmental Protection Agency, Energy Information Administration, CRA International, and the American Council on Capital Formation/National Association of Manufacturers.[3] The reduced economic output would translate into hundreds of thousands of lost jobs, especially in the manufacturing sector.[4] It should be noted that these are net job losses, after including the much overhyped "green jobs" that would be created by such government mandates.

New cap and trade proposals are being introduced that are generally similar to the America's Climate Security Act. They will serve as a starting point for the climate change debate in 2009.

Beyond legislation, the EPA is currently considering regulating carbon dioxide and other greenhouse gas emissions under the Clean Air Act. If the agency chooses to take this step, it would have to regulate these emissions from motor vehicles as well as a million or more energy-using businesses and farms.[5] The Heritage Foundation estimates the impact attributable to this massive and unprecedented regulatory proposal at a cumulative GDP loss of $6.8 trillion through 2029 and up to 2.9 million lost jobs in the manufacturing sector.[6]

The EPA regulations, or at least the threat of them, are being used to spur legislation. By being potentially more cumbersome and costly than a cap and trade bill (no mean feat), such regulations may make legislation look good by comparison.

The Impact of the Downturn

Despite support from the new administration and Congress, cap and trade bills are too costly and complex to be considered a sure thing even under the best of economic circumstances. And today we are in the midst of a severe and possibly long-lasting recession. Cap and trade measures would exacerbate the very economic concerns that have now been heightened by the downturn.

It should be noted that a weaker economy does not make global warming measures any more expensive. In fact, a recession would make them a bit cheaper, at least initially, as the required energy use reductions would be partially reached by the lower economic activity. Indeed, the only times America saw substantial declines in greenhouse gas emissions was during past recessions. But the impact of an economic downturn is also political. Just as $4.00 a gallon gas last June served to shine a harsher light on a bill likely to raise pump prices further, continued economic woes would spark greater public scrutiny of any global warming bill's impact on jobs and growth.

Consider the unemployment rate, currently getting widespread attention as it hit 7 percent for the first time in 15 years. Rising to 8 or 9 percent in 2009 seems likely, and reaching or even exceeding 10 percent is not a far-fetched prediction. Under those circumstances, a global warming bill likely to kill additional jobs would not go over well with the public and would stand in bizarre contrast to the efforts to enact and implement a stimulus package.

Buying Time To Reconsider Global Warming Policy

The most significant impact of the economic downturn on global warming policy may be in buying time. For 2009, the new Congress and president will focus more on economic issues and will likely avoid anything like cap and trade that could add to the economic problems.

In the meantime, the case for cap and trade will most likely weaken, both economically and scientifically.

We are already seeing the unraveling of global warming policy in Western Europe. These nations have adopted the 1997 Kyoto Protocol, the international treaty to reduce greenhouse gas emissions, and instituted a cap and trade program in 2005. In so doing, they have embarked on a climate policy many want America to follow. But Europeans are currently learning the hard way that ratcheting down carbon dioxide emissions in this manner is extremely difficult and expensive. In fact, most of these nations have not reduced their emissions over the last decade, and indeed a number have experienced faster increases than those in the U.S.[7]

Several western European nations are not on track to meet their Kyoto Protocol targets by the 2008-2012 compliance period, and many that are on track are doing so largely by means other than reducing emissions. Efforts to require additional post-2012 reductions are falling apart in the face of economic concerns. Affected European industries, from German carmakers to Polish utilities to Italian steel producers, are demanding exemptions and special deals, and several nations have threatened to abandon the process.[8] This unfolding failure will become more and more evident as time goes on and will undercut the efforts to place the American economy on the same path.

More importantly, the Kyoto treaty would not have made much difference even if all industrialized nations were in full compliance. By one estimate, the treaty would have reduced the earth's future temperature by 0.07 degrees Celsius by 2050,[9] an amount too small to even verify. This estimate likely overstates the impact, given that carbon dioxide emissions from China, India, and other developing nations are increasing at rates several times higher than in the developed world.[10] These nations are currently exempted under Kyoto and insist on remaining so.

China alone now out-emits the U.S. and its emissions are projected to increase six times faster than in the U.S.[11] This underscores the fact that a U.S.-only cap and trade bill would result in considerable economic pain for a vanishingly small environmental gain. As America's percentage of world emissions continues to shrink, the case for costly unilateral action will get harder to make.

The added time also offers the opportunity to reflect upon the science. After all, cap-and-trade bills are a solution only to the extent that global warming is a problem in the first place, and the evidence of late is taking a turn away from alarmism.

Most notably, 2008 turned out to be a cooler year than 2007, and by many accounts there has been no additional warming for all or most of the last decade. This non-warming countertrend is becoming too big to ignore, especially if it continues into 2009.

In addition, the truly terrifying global warming claims -- things like massive sea level rise and major increases in the frequency of powerful storms like Hurricane Katrina -- are simply not happening. For example, after a very bad 2005 hurricane season that included Katrina as well as other devastating storms (and much hype from Al Gore and the media about global warming being the cause), we have since had two generally below average and one above average hurricane years -- hardly the deadly trend we were warned of. Nor has there been anything even close to a repeat of Katrina in terms of loss of life or economic harm.

The global warming-inspired gloom and doom claims just aren't unfolding as predicted. With time, more and more people are noticing the widening gulf between global warming hype and reality, and wondering whether a costly re-ordering of the economy is really justified.

Conclusion

Just as $4.00 a gallon gas forestalled global warming cap and trade legislation in 2008, the weakening economy may do the same in 2009 and possibly beyond. And it should, because the economic and scientific rationale for this ill-advised policy is beginning to collapse. As bad as the economic downturn may get, it would have a silver lining if it prevents costly and ineffective global warming measures from being imposed.

Ben Lieberman is senior policy analyst in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Ben Lieberman Senior Policy Analyst, Energy and Environment
Thomas A. Roe Institute for Economic Policy Studies

Show references in this report

[1] Ben Lieberman, "The Lieberman-Warner Climate Change Act: A Solution Worse Than the Problem," Heritage Foundation Backgrounder No. 2140, June 2, 2008, p. 5.

[2] Ibid., p. 4.

[3] Ibid., Table 1.

[4] Ibid., pp. 5-6.

[5] Portia Mills and Mark Mills, "A Regulatory Burden: The Compliance Dimension of Regulation Carbon Dioxide as a Pollutant," U.S. Chamber of Commerce, September 8, 2008, at http://www.uschamber.com/assets/
env/regulatory_burden0809.pdf
.

[6] David W. Kreutzer and Karen A. Campbell, "Carbon Dioxide Emission Cuts: The Economic Costs Of The EPA's ANPR Regulations," Heritage Foundation Center For Data Analysis report, October 29, 2008, pp. 7-8.

[7] See United Nations Press Release, "UNFCC: Rising industrialized countries emissions underscore urgent need for political action on climate change at Poznan meeting," November 17, 2008, at http://unfccc.int
/files/press/news_room/press_releases_and_advisories/application/
pdf/081117_ghg_press_release.pdf

[8] See, Benny Peiser, "Cooling on Global Warming," The Wall Street Journal Europe, December 15, 2008, at http://online.wsj.com/article
/SB122937766062908297.html
.

[9] M.L. Wigley et al., "The Kyoto Protocol: CO2, CH4 and Climate Implications," Geophysical Research Letters, Vol. 25, No. 13 (1998), pp. 2285-2288.

[10] U.S. Energy Information Administration, "International Energy Outlook 2008," June 2008, chapter 7.

[11] Ibid.

First appeared in Yale's "The Politic"