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WebMemo #530 on Energy and Environment

July 8, 2004

As Reliable as the Groundhog: Kyoto's Proponents Are Back

By

Unlike the pesky cicadas that have the courtesy to annoy the nation's capital only once every seventeen years, misguided legislative proposals are an everyday occurrence on Capitol Hill. The periodic reemergence of a certain piece of irresponsible climate change legislation is no exception.

 

Senators John McCain (R-AZ) and Joseph Lieberman (D-CT) may try to attach an amended version of last year's Climate Stewardship Act of 2003 (S. 139) to the class-action lawsuit bill that is being debated in the Senate this week or to another legislative vehicle. Studies show that this energy-suppressing proposal, whether in its original version or in its amended form, would have an adverse impact on the nation's economy. It would increase the cost of energy for consumers, impact job creation, and slow the nation's economic growth. For these reasons alone, Congress should continue to reject attempts to impose caps on greenhouse gas emissions.

 

Still Dangerous

As first introduced, the Climate Stewardship Act would cap greenhouse gas emissions in two phases. Phase I would require a reduction to 2000 levels by 2010, and Phase II would require a reduction of emissions to 1990 levels by 2016. These phases are similar to the reductions called for under the fatally flawed Kyoto Protocol, which the Clinton Administration agreed to in 1998 despite the unanimous opposition of the Senate. Because of that opposition, Kyoto was never submitted to the Senate for ratification-a step necessary for it to take effect. Given this resistance to Kyoto and the adverse impact that its emissions cap would have on the economy, the bill's sponsors have since removed Phase II. Even this change, however, was not enough to secure passage; it was defeated last October in the Senate by a vote of 43 to 55.

 

The U.S. Energy Information Administration (EIA), an independent analytical and statistical agency in the Department of Energy, recently completed an analysis of the Climate Stewardship amendment at the request of Senator Landrieu (D-La.). EIA found that Phase I alone would costly to consumers:

  • Gasoline prices would increase by 9 percent in 2010 and by 19 percent in 2025;
  • Natural gas prices in the electric-power and industrial sector would increase by 21 percent in 2010 and 58 percent in 2025; and
  • Electricity prices would increase by 35 percent in 2025.

Likewise, Charles River Associates (CRA), an economics, finance, and business consulting firm, analyzed the proposal (PDF link) and found that imposing an emissions cap equal to 2000-level emissions in perpetuity would increase the cost of residential electricity by over 19 percent and raise gasoline prices 14 percent by 2020. In addition, natural gas and electricity prices for industry would increase by 32 percent and 43 percent, respectively, by 2020.

 

The CRA study also shows that the purchasing power of the typical household (2.6 members and an income of $49,000) would erode by over $600 in 2010 and by $1,000 in 2020.

 

More disturbingly, however, CRA notes that the cost burdens associated with this proposal would fall most heavily on the poor and elderly. CRA data show that the poorest 20 percent of households would have to bear energy cost increases 64 percent larger than the highest income households. The elderly would have to bear cost increases 15 percent higher than those under age 65.

 

Additionally, CRA projects that higher energy prices would cost 39,000 jobs by 2010 and 190,000 jobs by 2020.

 

Finally, CRA projects that all industries would suffer losses in production. For example, coal production, electricity generation, and oil refining would decline by 57 percent, 7.9 percent, and 8.8 percent, respectively, by 2020. Non-energy sectors that are dependent on energy, chemicals, and steel would be the hardest hit. CRA estimates that, collectively, production from energy-intensive industries would decline $70 to $160 billion by 2020.

 

To be clear, all these estimates assume the McCain/Lieberman proposal's Phase I cap. The economic impacts would increase in severity if any follow-on emissions caps, such as the Phase II cap included in the original version of the Climate Stewardship Act, were implemented. 

 

The McCain/Lieberman proposal was irresponsible policy when it was introduced as the Climate Stewardship Act of 2003 and remains so in its amended form. The Senate should send a strong signal to the proponents of this energy-suppressing legislation by once again soundly rejecting unwise and costly attempts to impose caps on greenhouse gas emissions.

 

Charli Coon is Senior Policy Analyst in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

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