Five Myths About the Lieberman-Warner Global Warming Legislation (S. 2191)
by Ben Lieberman
Heritage Foundation WebMemo #1940 (May 30, 2008)
Myth #1: LW would not be expensive.
"...By restricting carbon dioxide emissions from coal, oil, and natural gas--with a freeze at 2005 levels beginning in 2012, to a 70 percent reduction in 2050--the bill forces down supply and thus boosts the price of energy...Cumulative gross domestic product (GDP) losses could reach $4.8 trillion by 2030...
Myth #2: The costs fall on industry, not consumers.
...Particularly hard hit is the manufacturing sector where over one million jobs will be lost by 2022 and two million by 2027. The losses in household incomes could reach $1,026 per year by 2015. Annual household energy-price increases could hit $1,000 by 2030, including a 29 percent increase in the price of gasoline from 2008 levels.
Myth #3: Global warming is a crisis that must be addressed at all costs.
Global warming is a concern, not a crisis. Both the seriousness and the imminence of the threat are overstated... Overall, current and expected future temperatures are far from unprecedented, and are highly unlikely to lead to catastrophes.
Myth #4: LW effectively addresses the threat of climate change.
China has overtaken America as the world's largest emitter, and its emissions growth is several times greater than that of the U.S. India and other fast-developing nations are on a similar trajectory. Thus, the unilateral impact of the bill on global emissions would be inconsequential.
Myth #5: LW's cap-and-trade approach is a proven success.
Most E.U. nations are not on track to meet their targets, and many are seeing their emissions rise faster than those in the U.S. The program is furthermore plagued by accusations of fraud and unfairness. LW essentially adopts the European approach wholesale."
EU action against climate change: Leading global action to 2020 and beyond
© European Communities, 2007
"The February 2007 science report from the Intergovernmental Panel on Climate Change (IPCC)1 shows that the world has warmed by an average of 0.76º Celsius since pre-industrial times and the temperature rise is accelerating. Sea levels rose almost twice as fast between 1993 and 2003 as during the previous three decades. Man-made emissions of greenhouse gases are causing these changes.
The IPPC projects that, without action to limit emissions, the global average temperature is likely to increase further by 1.8º to 4ºC this century. We cannot allow this to happen. The European Union considers it vital to prevent global warming of more than 2ºC above the pre-industrial level.
There is considerable scientific evidence that, beyond this threshold, irreversible and potentially catastrophic changes could occur. In March 2007 EU Heads of State and Government endorsed an integrated climate change and energy strategy put forward by the European Commission which outlines the EU’s proposals for a global and comprehensive agreement to combat climate change after 2012, when the Kyoto Protocol targets will expire.
[READERS SHOULD NOTE THAT IT DOESN'T SAY 'CONCLUSIVE SCIENTIFIC EVIDENCE!].
The Commission’s analysis shows that for the world to have a fair chance of keeping the average temperature rise to no more than 2ºC, global emissions of greenhouse gases will have to be stabilised by around 2020 and then reduced by up to 50% of 1990 levels by 2050.
...The European Commission’s analysis shows that the investment needed to achieve a low-carbon economy would cost only around 0.5% of world GDP between 2013 and 2030. According to its projections, taking action against climate change would reduce global GDP growth by just 0.14% per year up to 2020. Global GDP growth over the period 2005-2020 would be 53%, barely lower than the 55% growth projected if no action were undertaken. And this figure does not take account of the benefits of cutting emissions, such as reduced damage from avoided climate change, greater energy security, and healthcare savings from less air pollution.
The Economic Costs of the Lieberman-Warner Climate Change Legislation
by William W. Beach, David Kreutzer, Ph.D., Ben Lieberman and Nick Loris
Center for Data Analysis Report #08-02
May 12, 2008
"...S. 2191 imposes strict upper limits on the emission of six greenhouse gases (GHGs) with the primary emphasis on carbon dioxide (CO2). The mechanism for capping these emissions requires emitters to acquire federally created permits (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 much like the effect of an energy tax, the increase in energy costs creates correspondingly large transfers of income from private energy consumers to special interests.
...We use these two cases to bracket our cost projections of S. 2191:
- Cumulative gross domestic product (GDP) losses are at least $1.7 trillion and could reach $4.8 trillion by 2030 (in inflation-adjusted 2006 dollars).
- Single-year GDP losses hit at least $155 billion and realistically could exceed $500 billion (in inflation-adjusted 2006 dollars).
- Annual job losses exceed 500,000 before 2030 and could approach 1,000,000.
- The annual cost of emission permits to energy users will be at least $100 billion by 2020 and could exceed $300 billion by 2030 (in inflation-adjusted 2006 dollars).
- The average household will pay $467 more each year for its natural gas and electricity (in inflation-adjusted 2006 dollars). That means that the average household will spend an additional $8,870 to purchase household energy over the period 2012 through 2030.
Our analysis does not extend beyond 2030, at which point S. 2191 mandates GHG reductions to 33 percent below the 2005 level. However, it should be noted that the mandated GHG reductions continue to become more severe and must be 70 percent below the 2005 level by 2050.
...Since income (as measured by GDP) drops as a result of S. 2191, it is clear that more capital is destroyed than is created. The cumulative GDP losses for the period 2010 to 2030 fall between $1.7 trillion and $4.8 trillion, with single-year losses reaching into the hundreds of billions.
...With S. 2191, there is an initial small employment increase as firms build and purchase the newer more CO2-friendly plants and equipment. However, any "green-collar" jobs created are more than offset by other job losses. The initial uptick is small compared to the hundreds of thousands of lost jobs in later years. Table 1 shows the high and low projections of the employment and income effects of S. 2191.
...Distribution of Auction Proceeds
S. 2191 specifies how the distribution of the auction proceeds will be spent, with constant percentages from 2012 to 2036. The auction process depends on the creation of a new nonprofit corporation called the Climate Change Credit Corporation to initiate and complete the auctioning of allowances.
Eleven percent will be allocated to an advanced-technology vehicles-manufacturing incentive. While 44 percent is to be spent on low-carbon energy technology, advanced coal and sequestration programs, and cellulosic biomass ethanol technology programs, 45 percent is to be spent on assisting individuals, families, firms, and organizations in the transition to a low-carbon regime. This includes 20 percent allocated to an Energy Assistance Fund, 20 percent allocated to an Adaptation Fund, and 5 percent allocated to a Climate Change Worker Training Fund.
...Proponents of cap and trade describe it as a flexible and market-based approach that allows the private sector to find the most cost-effective means of reducing greenhouse gas emissions. They expect the program to motivate fossil energy producers and users to reduce their carbon dioxide emissions through improvements in energy efficiency, expanded use of energy sources with fewer or no carbon emissions, or new carbon capture and sequestration (CCS) technologies that allow such emissions to be stored underground rather than released into the atmosphere.
...In contrast, critics fear that many of the necessary advances are decades away from being technologically and economically viable and that, in the interim, the caps in S. 2191 can be met only with severe reductions in energy use, which would drive up energy costs significantly--and would be, in effect, a massive energy tax.
...Critics also point to the substantial difficulties that the European Union has faced since implementing its greenhouse gas cap-and-trade program in 2005 in order to comply with the Kyoto Protocol, the multilateral treaty on emissions that the United States declined to ratify.
...In addition to the provisions of the bill, the many baseline assumptions about the future also affect the projected costs of S. 2191. They include assumptions about the pace of technological advances, especially those regarding the CCS breakthroughs that will be necessary for the continued use of coal, the energy source with the highest CO2 emissions per unit of energy. Continued use of coal is critical because it provides half of the nation's electricity. Assumptions about America's economic growth and concomitant energy needs are also of great importance, as are assumptions about the effect of previously enacted energy legislation, particularly the Energy Independence and Security Act of 2007.
This CDA report discusses three different views of this country's economic future, each shaped by different policies designed to reduce atmospheric carbon dioxide and, presumably, to reduce the warming trend in global climate change. Policymakers and others who follow the climate change debate closely should find each of these three views helpful in understanding the policy alternatives currently before us. These three views are:
- The current-law baseline. Presented here is a highly detailed, 30-year economic forecast that incorporates the principal elements of energy and climate change policies signed into law last year.
- Simulation of S. 2191, America's Climate Security Act of 2007, sponsored by Senators Joseph Lieberman (I-CT) and John Warner (R-VA). The simulation builds on the detailed baseline and assumes that critical technologies are fully developed.
- An alternative, more realistic scenario in which critical technology does not materialize over the 20-year forecast horizon...
...Natural Gas. In the baseline scenario, gas prices settle just below $7 per million British thermal units (Btus). This is less than the current price but well above the 1990s levels. Alaskan pipeline deliveries will not start until 2025, at which point they will help to offset supply reductions in the Lower 48 as well as imports from Canada. Nearly 100 gigawatts of old natural-gas-steam capacity is retired, and 50 gigawatts of the more efficient "natural gas combined cycle" (NGCC) plants are built. Total natural gas consumption grows by 0.4 percent per year through 2030.
Coal. In the baseline case, coal use is restrained by slower growth of energy demand and increasing generation of nuclear and renewable power. Demand will grow by an average of 0.2 percent each year through 2030. One hundred gigawatts of old inefficient energy is retired. Sixty-five gigawatts of new and replacement coal-fired power-generation plants will be added using the "integrated gas combined cycle" (IGCC) or advanced pulverized-coal technologies. These more efficient technologies use less coal and emit less CO2 per unit of electricity generated and are ready to be fitted for carbon capture and sequestration. Because of the additional cost, there is no use of CCS technology in the baseline case.
...Nuclear Energy. Though there are no significant CO2 emissions from nuclear power generation, it is not considered "renewable" for the purpose of meeting existing state-imposed targets. Nevertheless, federal incentives are already in place for an additional nuclear power capacity. There will be 12 gigawatts of new capacity built and 3 gigawatts of uprated additional capacity added at existing plants. Resolving the problems with waste disposal is a major hurdle in expanding nuclear power generation.
...Renewable Energy Sources. Federal and state initiatives already in place seek to increase the use of renewable energy sources. The definition of "renewable" varies from state to state but generally includes biomass, wind, and solar power. Higher fuel prices along with state and federal mandates cause renewable fuel use to grow at 5.5 percent per year through 2030.
S. 2191 sets ever more stringent caps on emissions of these gases. Using previous emission levels as yardsticks, the 2012 cap is set at the 2005 emission level. The cap drops to 15 percent below the 2005 emission level by 2020 and 33 percent below by 2030. By 2050, the goal is to have man-made GHG emissions at 70 percent below those of 2005.
...Barriers to Trade: Title VI, Global Effort to Reduce Greenhouse Gas Emissions
Title VI of S. 2191 is part of a global effort to reduce greenhouse gas emissions and ensures that emitting GHG in other countries does not undermine U.S. efforts to reduce GHG. The bill's supporters hope to encourage international action on GHG reduction.
To this end, the bill includes the suggestion that the President establish an interagency group to determine whether or not other countries have taken similar action to limit their release of GHG. The interagency group will be responsible for creating a reserve of international allowances, and any U.S. importer of covered goods must submit international allowances as a condition for the trade to occur.
Thus, importers of covered goods must submit emissions allowances that are equal in value to those required for those goods in our system. For instance, if the production of a product generates two tons of CO2 , importers of this product need two tons of allowances for each product they import.
An importer must also submit a written declaration to the administrator of U.S. Customs and Border Protection for each import. Failure to make a CO2 emissions declaration bars the importation of a good into the United States.
...Coal Technology... The costs of meeting the CO2 reductions mandated by S. 2191 are very sensitive to changes in the rate at which CCS technology is developed. Our generous scenario operates on the assumption that any coal-fired plant built after 2018 uses CCS. A second scenario assumes that the significant technological and political hurdles prevent CCS adoption before 2030.
...Natural Gas. Because of its higher cost, natural gas is not competitive with coal in the baseline case of zero CO2 restrictions. Though natural gas generates less CO2 per Btu than does today's coal, it is not competitive when coal generators use CCS...For carbon-allowance prices in the $30 to $40 range, replacing old steam plants with combined-cycle natural gas plants makes sense. When allowance prices exceed $50, coal plants with CCS are more competitive.
...Nuclear Energy. The projection is for no additional nuclear power beyond the base case.
...Renewable Energy Sources. Current state and federal legislation calls for more than tripling the amount of renewable energy in power generation and increasing transport biofuels by more than 1,000 percent. This includes 16 billion gallons per year of corn-based ethanol and biodiesel and 20 billion gallons per year of cellulosic ethanol and biodiesel...While S. 2191 has no additional mandates for biofuels, the costs of allowances for fossil fuels lead to greater use of biofuels. At this time, there is no commercially feasible cellulosic ethanol production. If this technology fails to deliver as projected, energy prices will have to rise enough to reduce the quantity of energy demanded by the amount of missing cellulosic ethanol.
...Economic Costs of the Lieberman-Warner Bill
Economic Output Declines.
...Th[e] investment-driven burst of GDP subsides after 2018. Higher energy prices decrease the use of carbon-based energy in production of goods, incomes fall, and demand for goods subsides. GDP declines in 2020 by $94 billion, in 2025 by $129 billion, and in 2030 by $111 billion (all, again, after inflation). When CCS is not implemented, the higher carbon fees produce more adverse economic effects. GDP is $330 billion below its baseline levels by 2025 and $436 billion below its baseline levels by 2030.
...[M]anufacturing benefits from the initial investment in new energy production and fuel sources, but the sector's declines are sharp thereafter. Indeed, by 2020, manufacturing output in this energy-sensitive sector is 2.4 percent to 5.8 percent below what it would be if S. 2191 never becomes law. By 2030, the manufacturing sector has lost $319 billion to $767 billion in output when compared to our baseline; that is, when compared to the economic world without Lieberman-Warner.
...Number of Jobs Declines.
...In 2025, nearly a half-million jobs per year fail to materialize. The job losses expand to more than 600,000 in 2026. Indeed, in no year after the boomlet does the economy under Lieberman-Warner outperform the baseline economy where S. 2191 never becomes law...Our baseline contains a 9 percent decline between 2008 and 2030. Lieberman-Warner accelerates this decrease substantially: Under our generous-assumptions simulation, employment in manufacturing declines by 23 percent over that same time period, or more than twice the rate without Lieberman-Warner...Other, less energy-intensive sectors, however, do not suffer such decreases.
...Energy Prices Rise.
...Higher energy prices, of course, are the root cause of the slower economy...[C]onsumer prices for electricity, natural gas, and home heating oil increase significantly between 2015 and 2030. Indeed, by the last year of our simulation, the total energy bill for the average American consumer has gone up $8,870 from 2012.
Incomes and Consumption Decline.
Declining demand for energy-intensive products reduces employment and incomes in the businesses producing these products. Workers and investors earn less, and household incomes decline. Reductions in income in these sectors spread and cause declines in demand for other sectors of the economy.
Our simulation captures this effect of higher energy prices. Under the generous-assumptions simulation, the income that individuals have after taxes declines by $47 billion (after inflation) in 2015 and by $50.7 billion in 2030. Our reasonable-assumptions simulation contains worse news: Disposable personal income falls $120 billion below baseline in 2015 and averages $68 billion below baseline over the entire period of 2008 to 2030.
Consumption outlays by individuals and households follow the pattern of lower income. In 2020, consumption expenditures are $52 billion lower than they would be in an economic world in which S. 2191 is not the law. Personal consumption outlays (after inflation) are $67 billion lower by 2030 and average $54 billion below baseline over the entire 22-year forecast period. Under a more reasonable assessment of the likelihood of standard use of CCS, consumption expenditures by individuals average $113 billion lower over the 22-year forecast period.
These declines in consumption are particularly dramatic in those parts of the economy that are sensitive to economic shocks: consumer durables, financial services, and discretionary medical services, among others."