October 11, 2007 | Backgrounder on Energy and Environment
Members of Congress and their staffs are facing a growing body of legislation intended to address global climate change. Given the tremendous complexity of this issue, and given that few offices have any specialized expertise in it, understanding the implications of these climate-change bills may seem like an impossible task.
Nonetheless, Members of Congress may face votes on one or more such bills in the near future. This guide is intended to give non-experts an overview of how the major pieces of climate-change legislation would work. Subsequent analyses will delve further into the economic impacts of these bills.
The similarities and differences between these climate-change bills are summarized below and in Table 1. One thing that they all have in common is that they will not be cheap. Each tries to force down emissions associated with the fossil fuel use that is the backbone of the U.S. economy. Indeed, most proponents of global climate-change legislation intend to slow the rate of economic activity by reducing the use of the coal, oil, and natural gas upon which the United States relies for 85 percent of its energy.
All of the bills constrain the supply and/or raise the cost of energy in one way or another. This is especially true of coal, which provides half of America's electricity. Thus, all of the proposed approaches would add costs to the economy. The only variables would be the extent, distribution, and timing of these costs.
A detailed discussion of the science of climate change is beyond the scope of this guide. However, each of these bills is a solution only to the degree that climate change is a problem in the first place and that the bill addresses it effectively. Thus, a short scientific overview is necessary to gauge the worth of these bills and determine whether or not the costs that they impose are justified.
There has never been much doubt that the release of carbon dioxide and other so-called greenhouse gases into the atmosphere has at least some warming effect on the planet. The real issues are whether or not the release of greenhouse gases is a significant factor relative to natural temperature variability and what the likely consequences of warming would be.
For any legislation, there are two key questions:
Climate change is not unprecedented. The Earth's average temperature has increased over the past 30 years, and many point to this as evidence of dangerous human-induced warming. However, temperatures have risen and fallen many times before, including the Medieval Warm Period and a well-documented global cooling trend from the 1940s to the 1970s that prompted headlines and Newsweek cover stories warning of a coming ice age. While mankind's activities have likely contributed to the current warming trend, today's temperatures are still within the range of natural variability.
Nor is the degree of the current warming worthy of the description "catastrophic." The current upward trend in temperatures is not unprecedented and will not lead to unprecedented catastrophes unless a very unlikely pattern appears, and this view is supported by the scientific evidence. Indeed, virtually all of the alarming rhetoric surrounding global warming--a massive rise in the sea level, deadlier hurricanes, the spread of tropical diseases, and other calamities--lies outside the scientific consensus. These climate bills would address real concerns, but these concerns are not catastrophic.
In addition, whatever the adverse consequences of warming, even the most stringent of the pending bills would reduce only a fraction of those consequences at a large cost. The most ambitious measure to date is the Kyoto Protocol, the multilateral treaty to reduce greenhouse gas emissions to which the U.S. is not a party. Even if the U.S. were a party to the treaty and the European nations and other signatories were in full compliance (most are unlikely to meet their targets), the treaty would reduce the Earth's future temperature only by an estimated 0.07 degrees Celsius by 2050--an amount too small even to verify.
Indeed, most of the climate-change bills have already been criticized by environmental activists as inadequate or, at best, as mere "first steps" toward more stringent controls.
Ironically, carbon dioxide emissions in several Kyoto nations have risen faster in recent years than U.S. emissions. This raises serious questions about the efficacy of bills that mimic the Kyoto approach.
Climate legislation runs the real risk of doing more economic harm than environmental good. Congress should carefully weigh the costs of these proposed measures against the likely benefits.
The Climate-Change Bills
The pending climate-change bills and those likely to be introduced can be divided into two broad categories: traditional energy measures and "cap-and-trade" legislation. Some hybrid bills contain elements of both.
Traditional Energy Measures. Most people are familiar with the first category because such measures are included in existing energy law. This includes mandates and incentives to switch to non- fossil fuel alternatives--namely, Renewable Fuels Standards (RFS; e.g., corn-based ethanol for vehicles) and Renewable Portfolio Standards (RPS; e.g., wind power for electricity generation). This category also includes measures aimed at reducing energy consumption, such as energy efficiency standards for home appliances and motor vehicle efficiency standards for cars and trucks, sometimes referred to as corporate average fuel economy (CAFE) standards.
Most of these measures are currently in place at the federal and/or state levels and have been justified on a variety of non-climate change grounds, including energy security and air pollution control. For example, the vehicle standards were first adopted in the 1970s in response to the Arab oil embargo, but climate change is now serving as a rationale for further tightening and expanding these provisions.
The primary vehicle for these measures is the comprehensive energy bill currently before Congress, but some provisions are included in the cap-and-trade bills.
Cap-and-Trade. This approach involves the first-ever restrictions on fossil fuel use in the United States. The "cap" refers to a limit on the amount of carbon dioxide that may be emitted from the use of coal, oil, or natural gas. "Trade" refers to the mechanism by which those covered entities can buy or sell the rights to emit, called allowances. These allowances could be bought and sold like a commodity. Thus, if a regulated entity reduced its emissions more than required, it could sell its excess allowances to others at the market price, usually measured in dollars per ton of carbon dioxide.
These bills have different emissions-reduction targets. Obviously, the more rapid and deep the reductions required, the more costly the bill would be. Each of the bills covers different entities. Some focus on specific sectors like electricity generation, while others would apply to the entire economy. Some bills cover only the largest emitters, while others would apply more broadly to even smaller entities.
As Table 1 highlights, these legislative proposals to reduce greenhouse gas emissions would mandate significant federal interference in the energy choices made by businesses and consumers. The economic impacts would certainly be substantial, as will be detailed in subsequent Heritage Foundation analyses. Whether or not these costs are worthwhile will be the key question in the upcoming debate over climate-change legislation.
Ben Lieberman is Senior Policy Analyst in Energy and the Environment in the Thomas A. Roe Institute for Economic Policy Studies and William W. Beach is Director of the Center for Data Analysis at The Heritage Foundation.
The legislation overview in Table 1 is based on a detailed analysis of global climate-change legislation prepared by analysts at Global Insight, Inc. (GII) under a contract with The Heritage Foundation. GII chose the legislation reviewed in Table 1 and the review categories in consultation with Heritage Foundation analysts. However, the methodologies, assumptions, conclusions, and opinions presented here are entirely the work of analysts at The Heritage Foundation. They have not been endorsed by and do not necessarily reflect the views of GII.
For example, under the cap-and-trade bills, each utility would be granted a certain amount of annual emissions allowances based on past emissions or some other formula. If the utility could reduce its emissions below the allotted levels (e.g., by switching some of its power generation from coal to a lower-emitting fuel source), it could then sell its excess allowances to another utility that has not been able to reduce its emissions sufficiently.
As of this writing, some major cap-and-trade proposals, such as one from Senators Joseph Lieberman (I-CT) and John Warner (R-VA), have yet to be formally introduced.