May 10, 2008 | WebMemo on Energy and Environment
Members of Congress are considering a number of bills designed to address climate change. Chief among them is S. 2191, America's Climate Security Act of 2007 (Joseph Lieberman, I-CT, John Warner, R-VA). This bill would set a limit on the emissions of greenhouse gases, mainly carbon dioxide from the combustion of coal, oil, and natural gas. Since energy is the lifeblood of the American economy and 85 percent of it comes from these fossil fuels, the bill represents an extraordinary level of economic interference by the federal government. For this reason, it is important for policymakers to have a sense of the economic impacts of S.2191 that would go along with any environmental benefits. This Report describes and quantifies those impacts.
Workers and families in the state of California may be wondering how this legislation will affect their income, their jobs, and the cost of energy. Unfortunately, the Lieberman-Warner legislation promises extraordinary perils for the American economy, should it become law. Arbitrary restrictions predicated on multiple, untested and undeveloped technologies will lead to severe restrictions on energy use and large increases in energy costs. In addition to the direct impact on consumers' budgets, these higher energy costs spread through the economy, injecting unnecessary inefficiencies at virtually every stage of production and consumption.
Largely circumventing the normal Congressional appropriations process, Lieberman-Warner extracts billions of dollars from the thousands of energy consumers in California and delivers this wealth to permanently identified classes of recipients. Unbound by the periodic review of the normal budgetary process, this de facto taxing-and-spending program threatens to become permanent-independent of the goals of the legislation.
Senate Bill 2191 imposes strict upper limits on the emission of six greenhouse gases (GHG) with the primary emphasis on carbon dioxide (CO2). The mechanism for capping these emissions requires emitters to acquire federally created permits (called allowances) for each ton emitted. The cost of the allowances will be significant and will lead to large increases in the cost of energy. Because the allowances have an economic effect equivalent to a fuel tax, the increase in energy costs creates equally large transfers of income from energy consumers to special interests.
The following map of California shows total and manufacturing employment changes in 2020.
Job Losses Overall and in Manufacturing in California
Consumers will be hard hit. Table 1 shows the expected increases in retail energy prices (adjusted to 2006 dollars to eliminate the impact of inflation) in 2020 for California. Between 2012, when the restrictions first apply, and 2030, the end date of our analysis, the prices of electricity, home heating oil, natural gas and gasoline could rise more than 100 percent compared to the prices without passage of S.2191
Table 1: Changes in Energy Prices and the Total Amount Taken from Energy Users and Given to Selected Recipients (Transfers) Due to S.2191
In addition to taking a bite out of consumers' pocketbooks, the
high energy prices throw a monkey-wrench into the production side
of the economy. Contrary to the claims of an economic boost from
"green" investment and "green-collar" job creation, S.2191 reduces
economic growth, gross domestic product (GDP) and employment.
The Lieberman-Warner legislation slows the economy in California because high energy prices reduce demand for goods and services. That drop in demand leads to slower income growth for workers. Map 2 below shows changes in income for California in 2020.
Lieberman-Warner Reduces Incomes in
California in 2020
Overall Loss and Loss for Four-Person Family