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Mar 18th
| Cap and Trade Legislation's Economic Impact on Georgia |
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| Written by ACCF/NAM |
| Tuesday, 03 June 2008 07:07 |
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June 3, 2008  ACCF/NAM Study of the Economic Impact of the Lieberman-Warner Climate Security Act. Economic Impact on Georgia 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 Impact on Jobs Under L/W, Georgia would lose 41,358 to 62,213 jobs in 2020 and 116,703 to 155,349 jobs in 2030. 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. Georgia would see disposable household income reduced by $941 to $3,051 per year by 2020 and $3,966 to $7,231 by 2030. L/Ws Impact on Energy Prices Most energy prices would rise under L/W, particularly coal, oil, and natural gas. The price of gasoline in Georgia would increase between 74% and 145% by 2030, while electricity prices would increase by 103% to 135%. Table 1 shows the increase in electricity, gasoline and natural gas prices faced by a typical Georgia household compared to national household increases. Georgia residents would pay between 91% and 131% 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 Georgias gross state product (GSP) by between $4.5 and $6.2 billion per year by 2020 and $16.4 and $19.4 billion by 2030.
Impact on Industry Georgias major economic sectors will be affected by emission caps (Figure 5).4 The current two largest sectors, food products manufacturing and paper manufacturing, show decreases in output of 1.6% to 2.4% and 5.2% to 7.1%, respectively in 2020. All manufacturing sectors will suffer output losses of between 3.2% and 4.4% by 2020, while output from energy intensive sectors fall between 7.8% and 9.1%. These losses would be significantly higher by 2030 and would have a lasting impact on Georgias economic base. Emphasis on non-fossil fuel generation in Georgia would result in a 0.9% to 1.5% increase in electricity generation.
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 Georgia (with average incomes of $14,193) will spend between 18% and 20% of their income on energy under L/W compared to a projected 16% without L/W. Others on fixed incomes, such as the elderly will also suffer disproportionately. Impact on State Budgets6 The increases in Georgias energy costs under L/W will impact expenditures throughout the state. Specifically, Georgias 3,288 schools and universities and 190 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; FOOD = Food 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. ACCF/NAM Resource Page, all you need to know, contacts, state by state reports Trackback(0)
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| Last Updated on Tuesday, 03 June 2008 08:18 |
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Your online article “Cap and Trade Legislation's Economic Impact on Georgia" is written as if the ACCF/NAM Study of the Economic Impact of the Lieberman-Warner Climate Security Act has produced facts. Nothing could be further from the truth. As you pride yourself on providing “accurate news and information about threats to our country†we were compelled to react.
Firstly, this article discusses the outcome of a modeling exercise. It is clear that models of the economy are not crystal balls and do not provide “factsâ€; and that nobody can reliably predict economic conditions five years hence, let alone 25 years. However, this modeling exercise is particularly flawed.
The ACCF/NAM analysis adopts a set of draconian a*sumptions that ignore important provisions of the Climate Security Act and impose artificial constraints on the economy’s ability to reduce emissions. No wonder then that the projected economic impacts by this study are far greater than those estimated by any independent analysis (such as those of the EIA, EPA and MIT).
The EPA's analysis - like other respected studies -finds that climate policy goes hand-in-hand with robust economic growth. The U.S. economy is expected to grow at 2.5 to 3% per year. In comparison, the median projected impact of the bill on growth rates is just 0.03%. Similar limited impacts were found for employment, energy prices and impact on household budgets. In fact, putting the impact in perspective, we can point to the 35 cents out of every dollar of income that the average American household currently spends on protecting its family (by paying for insurance, medical care, and, via taxes, national defense, Social Security, and local fire and police). The cost of protecting our families from potentially catastrophic global warming amounts to just 3/8 of a cent per dollar of household income.
As a final point it is important to question the impact son Georgia in specific. These results can’t be directly compared to those by the government agencies (EPA and EIA), or the independent analysis by MIT, because none of these attempted to estimate the state level impacts. As the Congressional Research Service concluded in a recent report:
“Simple attempts by some presentations to break down the cost by industrial sector
or by state “should be viewed with attentive skepticism†(CRS, Climate Change:
Costs and Benefits of S.2191, May 151998, p.70)
But it turns out that it’s not necessary to compare the ACCF/NAM study against other analyses, because it doesn’t even measure up against a far simpler measuring standard: internal consistency. ACCF/NAM’s state-level impacts are greater than the national impacts which were estimated by their model for more than 60% of the states in the “high cost†scenario. It doesn’t take much math to figure out that something is wrong here. After all, these are estimates of household impacts, and they all represent averages. So it simply can’t be the case that the state-level impacts are systematically higher than the national impact. Moreover, the states with higher-than-average impacts include states like California, Texas, New York, and Florida.
Importantly, the NEMS model used by ACCF/NAM in its analysis only produces the national-level impacts. The state-level impacts were purely the work of ACCF/NAM, and the handiwork shows.
The conclusion is clear:
The ACCF/NAM analysis is based on unrealistic a*sumptions, does not reflect the actual provisions of S.2191, and its Georgia specific impacts are the result of messy handiwork manipulated for the purposes of scaremongering. This is not an economic impact analysis but a badly crafted trompe-l'Å“il.
Britt Groosman is a Senior Economic Policy Analyst for the Environmental Defense Fund. She can be reached via email ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it ) or telephone (212.616.128