Cap and Trade Legislation's Economic Impact on Alabama

Written by ACCF/NAM


May 28, 2008
ACCF/NAM Study of the Economic Impact of the Lieberman-Warner Climate Security Act
Alabama Economic Impact on the State from the Lieberman-Warner Proposed Legislation to Reduce Greenhouse Gas Emissions (PDF Report with graphs and references)
Understanding the economic impacts of the Lieberman- Warner Climate Security Act1 (L/W bill) can help guide choices on climate change policy.2 In this study, the L/W bill was analyzed under low and high cost cases with respect to a baseline that projects the future in the absence of the bill.

The L/W bill would enforce a nationwide cap and trade program for the emissions of greenhouse gases (GHGs) and would reduce GHG emissions covered by the bill to 4,992 Million Metric Tons of CO2 (MMTCO2) by 2020 and 3,856 MMTCO2 by 2030. L/W sets targets that would reduce GHG emissions to 15% below 2005 levels by 2020; 30% below 2005 levels by 2030; and 70% below 2005 levels by 2050. Covered emissions are assumed to include everything from combustion of fossil fuels in the United States, plus non-CO2 GHG emissions included in the L/W cap. The price of carbon permits (what companies must pay to emit CO2) could reach between $55 and $64 per metric ton of CO2 (MT) by 2020 and could increase to between $227/MT and $271/MT by 2030.3

Impact on Jobs Under L/W, Alabama would lose 17,200 to 25,874 jobs in 2020 and 44,721 to 59,530 jobs in 2030 (Figure 2). The primary cause of job losses would be lower industrial output due to higher energy prices, the high cost of complying with required emissions cuts, and greater competition from overseas manufacturers with lower energy costs.

Decrease in Disposable Household Income Higher energy prices would have ripple impacts on prices throughout the economy and would impose a financial cost on households. Alabama would see disposable household income reduced by $805 to $2,611 per year by 2020 and $3,431 to $6,257 by 2030.

L/W’s Impact on Energy Prices Most energy prices would rise under L/W, particularly coal, oil, and natural gas. The price of gasoline in Alabama would increase between 74% and 144% by 2030, while electricity prices would increase by 122% to 159%. Table 1 shows the increase in electricity, gasoline, and natural gas prices faced by a typical Alabama household compared to national household increases. Alabama residents would pay between 99% and 142% more for their natural gas by 2030.
1 S. 2191 2
The study used the National Energy Modeling System (NEMS) and assumptions provided by ACCF and NAM for this analysis. NEMS is used by the US Energy Information Administration for energy forecasting and policy analysis. “Low” refers to the Low Cost Case, which assumes higher nuclear capacity, less constraints on new generating technologies, etc. Both cases use higher capital costs than the baseline. “High” refers to the High Cost Case, which assumes low nuclear additions, constrained new generation technologies, high oil prices, etc. (See the full report for all assumptions). 3 All dollar figures in this report are presented in constant 2007 dollars.

Factors Contributing to Higher Electricity Prices L/W would reduce GHG emissions from all sectors of the economy (transportation, residential, commercial, and industry); however, as the largest emitter of GHGs, the primary impact would fall on the electric sector. L/W would result in the electric industry shutting down most carbon-based generation and/or using expensive, as yet unproven technology, to capture and store CO2. To meet the stringent goals of L/W, the electric industry would also have to substitute high cost technologies, such as biomass and wind, for conventional generation.

Impact on Economic Growth High energy prices, fewer jobs, and loss of industrial output are estimated to reduce Alabama’s gross state product (GSP) by between $1.9 and $2.6 billion per year by 2020 and $6.8 and $8.1 billion by 2030.

Impact on Industry Alabama’s major economic sectors will be affected by emission caps.4 The current two largest sectors, transportation manufacturing and paper manufacturing, show decreases in output of 5.9% to 13.2% and 4.8% to 6.5%, respectively in 2020. All manufacturing sectors will suffer output losses of between 3.5% and 5.9% by 2020, while output from energy intensive sectors fall between 7.5% and 9.5%. Alabama’s coal production would fall between 18.5% and 22.1%, although due to its low cost of generation, electricity supply could rise slightly over the baseline forecast. These continued losses will have a lasting effect on the economic base of Alabama.

Impact on Low Income Families The impacts of L/W will be felt especially by the poor, who spend more of their income on energy and other goods than other income brackets. By 2020, higher energy prices mean that low income families in Alabama (with average incomes of $12,945) will spend between 22% and 25% of their income on energy under L/W compared to a projected 19% without L/W. Others on fixed incomes, such as the elderly will also suffer disproportionately.

Impact on State Budgets The increases in Alabama’s energy costs under L/W will impact expenditures throughout the state. Specifically, Alabama’s 2,069 schools and universities and 134 hospitals will likely experience a 28% to 35% percent increase in expenditures by 2020 and a 91% to 123% increase by 2030. For government entities, costs for services, including public transportation and vehicle fleets, such as school buses, will also rise under L/W.

4 MAN = Manufacturing, EIS = Energy Intensive Sectors; TRAN = Transportation equipment manufacturing; PAP = Paper products manufacturing. 5 These projections assume that the energy expenditures by income quintile in the state are the same as the average for the census division, since there is insufficient data to accurately calculate this quantity on the state level. 6 These projections assume that the expenditures on schools and hospitals are the same as the average for the census region, since there is insufficient data to accurately calculate these quantities on the state level.

For a copy of the comprehensive national and 50-state reports, please visit http://www.accf.org/ or www.nam.org/climatechangereport.
For additional information, or to schedule and interview, please contact Laura Narvaiz for NAM at (202) 637-3104 or This email address is being protected from spambots. You need JavaScript enabled to view it. This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , or Mike Burita for ACCF at (202) 420-9361 or This email address is being protected from spambots. You need JavaScript enabled to view it. This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .
About NAM
The National Association of Manufacturers is the nation’s largest industrial trade association, representing small and large manufacturers in every industrial sector and in all 50 states.

Headquartered in Washington, D.C., the NAM has 11 additional offices across the country.
About ACCF
The American Council for Capital Formation (http://www.accf.org/) is a nonprofit, nonpartisan organization dedicated to the advocacy of tax and environmental policies that encourage saving and investment.
The ACCF was founded in 1973 and is supported by the voluntary contributions of corporations, associations, foundations, and individuals.

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