Wrong Again 1: Business Attacks Climate Security Act

The National Association of Manufacturers and the American Council for Capital Formation today released their latest effort to frighten the American people and their representatives in Congress for acting meaningfully to combat global warming. The NAM/ACCF report, titled “Analysis of The Lieberman-Warner Climate Security Act (S. 2191),” unsurprisingly predicts that the Climate Security Act would lead to higher electric rates, loss of jobs, high allowance prices, and other economic harms.

This study is nothing more than a bad rerun of long ago predictions about acid rain controls that proved false. Twenty years ago, these same predictions were made by industry and the Environmental Protection Agency about the then controversial proposed acid rain control program. None of these predictions came true. After enactment of the acid rain program in 1990, electricity prices went down (in constant dollars), not up.

In fact, electricity prices are lower today than they were in 1990, even after implementation of three rounds of controls on sulfur dioxide from power plants. Although there were some coal mining job loses, EPA found that by 2010 “95 percent of the decline [in mining jobs] is expected to be due to productivity gain and only 5 percent of the loss in jobs (4,100) is expected to be attributable to Title IV [acid rain program].”

The acid rain program was the first big cap-and-trade program, and EPA predicted that the price of sulfur allowances would be $750 per ton. Actual price: less than $200 per ton under the original program. Why were these models wrong? Because none of these models can account for innovation spurred by putting a price on pollution emissions that were formally free.

Once managers and engineers have binding targets and firm deadlines, they are able to meet the standards for much less than the predicted amount. The NAM/ACCF study suffers from the same inherent flaw. It is a static guess about a dynamic and unpredictable economy. The NAM/ACCF study will be as wrong now as the acid rain studies were then.

Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy at the Center for American Progress. To learn more about the Center’s energy proposals please see the Energy and the Environment page of our website.

3 Responses to Wrong Again 1: Business Attacks Climate Security Act

  1. Ronald says:

    Great stuff on this website. And lots. Hard to keep up.

    My opinion on carbon Cap and Trade and carbon taxes is that while Cap and Trade will do much to get us lower carbon emissions, it doesn’t have to be our only method.

    From what I have read, if we didn’t have us Cap and Trade on sulfur and used taxes instead to lower sulfur emitted from power plants, it would have cost 40 percent more per ton. That is if it was taxes, for every 100 dollar cost for Cap and Trade, it would have cost 140 dollars for every ton of sulfur that wasn’t emitted from power plants. The important part of this is that even though it would have cost more for each ton of sulfur not emitted, the money taxed would have gone in a government general tax fund. Taxes in other things could have been decreased.

    That’s why I’m for Tax Trade instead of Cap and Trade. Carbon based energy is much more a part of the economy than sulfur exhaust from power plants. The scale is so huge. Taxing carbon is huge also, but this has been done before, government taxes are a huge part of our economy, it’s just that if we trade taxes from property, sales and income taxes to fossil fuel carbon, we’ve just traded one form of taxing for another.

    Tax carbon energy for manufacturers/producers at a world wide agreed upon rate in dollars per ton carbon. Level carbon energy costs for all manufacturers/producers around the world.

    Tax carbon energy for consumers at a rate of GNP around the world. There can be an agreed upon consumption tax rate of, say 3 percent of GNP for each country to try to meet. Each countries consumption taxes would go into that countries tax general fund and allow that country to lower other consumption taxes on their own population. For a guide, state sales taxes are 3.2 percent of GNP and property taxes are 2.8 percent of GNP.

    A carbon energy tax for consumers could also increase per decade, 3 percent of GNP in the 2020’s 5 percent in the 2030’s and 7 percent in the 2040’s of GNP as goals for each country in the world would go a long way in cutting fossil fuel carbon use. With a 7 percent of GNP fossil fuel carbon tax, the United States could eliminate each states sales taxes and half of property taxes and still reduce income taxes by 300 billion dollars a year.

  2. Before I go on, I just want to say I completely agree with retrofitting plants with emission control devices. However, the report is correct about electricity prices because there are a number of factors that will increase the price of electricity over the next 5-10 years. First of all, commodities. That’s an obvious one: prices are going up and utility companies get to pass through those costs to their customers through a “fuel adjustment clause”. Second, these emission control devices. Those are also a passthrough. Customers pay whether they like it or not. It goes on the bill and that’s it. The costs for these items are skyrocketing because of demand elsewhere in the world. Trouble. Third, carbon prices. Carbon prices will end up being a passthrough as well and who knows where the price of carbon will end up. Coal is a very plentiful cheap source of energy, but it is very polluting, the more taxes you put on it, the more customers will have to foot (Check this out. Fourth, electrical infrastructure. Electrical infrastructure is in a major upgrade phase as we speak. In the next three years, there is close to $100 bn being spent on transmission lines, other electric devices, new generating plants and environmental controls. Those costs are equally a pass through. Lastly, the price of natural gas. In many US markets, natural gas sets the price for electricity. Not only is natural gas at $10/MMBTU (from $7 in January) but there are more natural gas plants being built which will increase demand, further increasing the price. Why? Because it is too difficult to get a nuclear plant built in the time they will need the power, and coal plants are simply too heavy of a risk to take on, so what choice do you have? None.

    Simply put, electric customers better brace themselves whether they like it or not, because prices will go up. There are too many contributing factors to price and the price increase has become inevitable. It’s very sad to write something like this, especially during a consumer crunch and $4/gasoline, however, that is the next shoe to drop.

  3. David B. Benson says:

    Scott Greenstein stated “Coal is a very plentiful cheap source of energy, …”

    Not so cheap anymore. The spot prices for coal are going way up, world-wide.

    Maybe not so plentiful in a couple of decades, either. Go read about Peak Coal.