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, Minnesota would lose 22,426 to 33,735 jobs in 2020 and 56,018 to 74,569 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. Minnesota would see disposable household income reduced by $1,066 to $3,455 per year by 2020 and $4,497 to $8,201 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 Minnesota would increase between 73% and 140% by 2030, while electricity prices would increase by 124% to 153%. Table 1 shows the increase in electricity, gasoline, and natural gas prices faced by a typical Minnesota household compared to national household increases. Minnesota residents would pay between 109% and 153% more for their natural gas by 2030. 1
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 Minnesota’s gross state product (GSP) by between $2.9 and $4 billion per year by 2020 and $10.7 and $12.6 billion by 2030 (Figure 4).
Impact on Industry
Minnesota’s major economic sectors will be affected by emission caps (Figure 5).4 The current two largest sectors, computer and electronic products manufacturing and paper manufacturing, show decreases in output of 1.6% to 1.9% and 5.3% to 7.0%, respectively in 2020. All manufacturing sectors will suffer output losses of between 3.5% and 5.2% by 2020, while output from energy intensive sectors fall between 4.5% and 5.7%. Electricity production would fall by between 9.6% and 10.0% (Figure 6). These losses would be significantly higher by 2030 and would have a lasting impact on Minnesota’s economic base.
Impact on Low Income Families5
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 Minnesota (with average incomes of $17,156) will spend between 16% and 18% of their income on energy under L/W compared to a projected 14% without L/W. Others on fixed incomes, such as the elderly will also suffer disproportionately.
Impact on State Budgets6
The increases in Minnesota’s energy costs under L/W will impact expenditures throughout the state. Specifically, Minnesota’s 3,454 schools and universities and 147 hospitals will likely experience a 31% to 39% percent increase in expenditures by 2020 and a 107% to 146% 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; COMP = Computer and electronic products 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.
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