Energy Efficiency & Climate Change Law

Various studies have recently attempted to predict how much the climate bill will cost and who bears this cost.

Unfortunately, the answer to the former has been varied among reports, while the answer to the latter depends on how the emissions trading scheme will be structured. It remains to be seen how Congress will design the climate bill; and, if it should ever become law, how the Federal agencies would regulate the legislation and how the market would respond.  

The following seeks to answer the "Cost Questions" by providing an overview of the predictions of the climate bill’s impact on:

1. The U.S. economy
2. American households
3. U.S. industry

Impact of the Climate Bill on the U.S. Economy

A U.S. Congressional Budget Office report from September 2009 estimates that, by 2020, climate legislation will reduce the United States’ GDP by 0.2% to 0.7%.  Further, a report by the American Council for Capital Formation and the National Association of Manufacturers predicts that the legislation could cost U.S. workers up to 2.4 million jobs by 2030.  However, various researchers assert that investment in clean energy and energy efficiency will actually boost economic growth ("a $150 billion investment in clean energy could create a net increase of 1.7 million American jobs and significantly lower the national unemployment rate.") 

Impact of the Climate Bill on U.S. Households

Much of the debate surrounding the climate bill has centered on this issue.  If public opinion is an indicator, then the impact of the climate bill on U.S. households will continue to gain traction as a salient issue in the U.S. climate bill debate.  An NBC/WSJ poll conducted last week found that 48% of respondents said they would approve "of a proposal that would require companies to reduce greenhouse gases that cause global warming, even if it would mean higher utility bills for consumers to pay for the changes.”  That is a considerable drop from 53% of respondents that said they would approve when asked the same question in April’s NBC/WSJ poll.

While certain studies have predicted that climate legislation would add between $1100 and $3,000 per year to the average U.S. household’s energy costs, the CBO reported in June that the net annual cost of H.R. 2454 – the House climate bill – would be approximately $175 per household in 2020, which translates to the cost of a stamp each day.  Similarly, on October 23, 2009, the U.S. Environmental Protection Agency (EPA) issued a report estimating that S.1733 - the Senate climate bill – would cost a U.S. household only 22 to 30 cents per day.

Impact of the Climate Bill on U.S. Industry

Various U.S. industries, including refiners, coal and carbon-intensive manufacturing, are expecting to suffer heavy economic burdens if the climate bill becomes law.  The September 2009 CBO report (referenced above) acknowledges that, in the short term, more jobs are likely to be lost in energy-intensive sectors than are created in clean energy.  However, history shows that CBO predictions can over-estimate the costs of programs because markets tend to adapt to government regulation.  

For example, when Congress passed the Clean Air Act Amendments in 1990 – which provided the EPA with authority to set a national cap-and-trade scheme for emissions of sulfur and nitrogen oxides (that result in in acid rain) – the CBO estimated that the program would cost U.S. industry $6 billion each year.  However, the annual cost was a fraction of that estimate – $1.1 to $1.8 billion "because the program enabled emitters to choose their own solutions to the problem."  (Source: Joel Kurtzman, "The Low-Carbon Diet: How the Market Can Curb Climate Change," published in Foreign Affairs, Aug. 25, 2009).  It is important to note, however, that the reduction of greenhouse gases is a more complex issue than that of sulfur and nitrogen oxides.