Sunday, June 01, 2008

Five Myths About the Lieberman-Warner Global Warming Legislation

Starting tomorrow the United States Senate will begin debate of the Lieberman-Warner Cap and Trade bill. It is my hope that a good Cap and Trade bill emerges and is passed. Unfortunately, I have doubts that a good bill will emerge. There are too many interests who will want the bill drawn in such a way as to benefit them that I suspect the final product will be flawed. When Congress must pick winners and losers, the pubic usually looses. A simple carbon tax would be much less costly and much less subject to special interest manipulation. Unfortunately a Carbon Tax bill is not before us and a Cap and Trade bill is.

The Heritage Foundation, a respected Conservative think-tank has come out against the Lieberman-Warner bill. Ben Lieberman, a Senior Policy Analyst for Energy and Environment in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation has produced a short analysis of the bill called Five Myths About the Lieberman-Warner Global Warming Legislation. You can expect this study to be the talking points that will be repeated over and over again by the bills opponents. I am posting that report and responding:

Myth #1: LW would not be expensive.

Fact: Simply put, LW works like a massive energy tax. 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. In fact, if energy prices did not go up, then the targets in the bill would not be met. As energy is the economy's lifeblood, and 85 percent of it comes from these fossil fuels, the impact will be substantial. Cumulative gross domestic product (GDP) losses could reach $4.8 trillion by 2030, according to an analysis conducted by the Heritage Foundation. The Massachusetts Institute of Technology, the Environmental Protection Agency, Charles River Associates, and the National Association of Manufacturers have all conducted studies predicting significant economic burdens on consumers should the bill be enacted.

Response: I think this is exactly correct. Any effective effort to combat global warming is going to be expensive. Also, it does work like a massive energy tax. One of my criticisms of the environmentalist is that they have soft-pedaled the sacrifice and cost that it will take to address the problem.

Myth #2: The costs fall on industry, not consumers.

Fact: Virtually all the burden imposed by LW falls upon consumers. The bill will spur net job losses well into the hundreds of thousands, and possibly nearing one million. 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.

Response: This is true. Anytime government puts an additional burden on industry, the burden is born by consumers. I do not know the accuracy of the cost to the economy of the bill, but will assume the estimates are correct.

Myth #3: Global warming is a crisis that must be addressed at all costs.

Fact: Global warming is a concern, not a crisis. Both the seriousness and the imminence of the threat are overstated. For example, the recent United Nations Intergovernmental Panel on Climate Change report estimates 7 to 23 inches of sea level rise by the end of the century--far less than the widely popularized claims of 18 to 20 feet and little more than ongoing trends over the past several centuries. The attempt to link Hurricane Katrina with climate change is directly contradicted by the World Meteorological Organization and many scientists. Overall, current and expected future temperatures are far from unprecedented, and are highly unlikely to lead to catastrophes.

Response: Not true. Global warming is a crisis. While there are dissenting voices, the overwhelming consensus of the scientific community is that it is a serious and imminent threat. Read the Intergovernmental Panel on Climate Change Report. That report clearly says global warming is a serious threat and we have only a few years to do something about it. Global warming is real, and by the time the worse effects occur it may be too late to reverse them. It is only because the consequences of doing nothing are so serious that a costly undertaking like cap and trade or a carbon tax should be contemplated.

Myth #4: LW effectively addresses the threat of climate change.

Fact: Even assuming the worst of global warming, LW reduces the threat by a minuscule amount. The bill reduces emissions of carbon dioxide and other greenhouse gases in the United States only. 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. At most, it would reduce the earth's future temperature by one or two tenths of a degree Celsius--too small to even verify. In other words, LW is all economic pain for no environmental gain.

Response: This is a legitimate problem. If we reduce our own emission, that will do little to curtail global warming unless we can get China and India on board. However, if the US acts responsibly to curtail its global warming emissions, then we can speak with moral authority and attempt to negotiate treaties that will bring China and India on board.

Myth #5: LW's cap-and-trade approach is a proven success.

Fact: Critics of the cap-and-trade approach in LW, in which emissions are capped and regulated entities may trade their rights to emit, point to the European Union's substantial difficulties since initiating its own cap-and-trade program in 2005. 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.

Response: This is true regarding the European Cap and Trade but not true about Cap and Trade in general. Just because Europe got it wrong does not mean that we cannot get it right. It is not the concept that is flawed, but the design of the final product. We know that a Cap and Trade system can work. If you recall when Acid Rain was a problem, it was solved by the use of a system of Cap and Trade. In addressing the problem of Acid Rain, Cap and Trade was a proven success.

Conclusion: Overall, the Lieberman-Warner bill promises substantial hardship for the economy overall, for jobs, and for energy costs. Given current economic concerns and energy prices, this is the last thing the American people need. At the same time, the environmental benefits would likely be small to nonexistent. The Lieberman-Warner bill fails any reasonable cost-benefit test.

My Conclusion: If passed into law the Lieberman-Warner bill will cause substantial hardship. If the final product has so many loopholes that it is ineffective then it does not deserve to be passed. However, if the final proposal is a good bill that substantially curtails global warming emission then the benefit of avoiding the consequences of global warming makes the cost acceptable.

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  1. I for one hope that this bill just flops. And if it doesn't, and somehow gets passed, I hope that all who voted for it will be voted out of office when their time for elections come. The last thing we need is higher prices.

  2. “If you recall when Acid Rain was a problem, it was solved by the use of a system of Cap and Trade. In addressing the problem of Acid Rain, Cap and Trade was a proven success.”
    The cap and trade system that is believed to have reduced acid rain in the Northeast, did so for reasons other than the internal workings of the scheme. Part of the acid rain programs success was good timing: The price of low-sulfur coal, which reduces emissions was falling which gave many coal fired plants an easier way to trim their emissions. Secondly, the technology to reduce sulfur dioxide (which produced acid rain) was available at the time. The technologies that would do similar for CO2 at a greater scale aren’t ready yet. Hence, cap and trade for CO2 would be very expensive.