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CBO stunner: Waxman-Markey cuts U.S. GHGs sharply but costs only a postage stamp a day — without counting the efficiency savings

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"CBO stunner: Waxman-Markey cuts U.S. GHGs sharply but costs only a postage stamp a day — without counting the efficiency savings"

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A June 5 Congressional Budget Office analysis found under the American Clean Energy and Security (ACES) Act, greenhouse gas emissions in capped sectors would be cut nearly 12% in 2020. And I’ve argued we would actually achieve even deeper U.S. reductions in 2020 thanks in part to soaring production of unconventional natural gas.  On Friday, CBO released a new analysis showing just how little it would cost American families to start down this path of averting catastrophic global warming — and another new study found that accelerating the transition to a clean energy economy would generate 1.7 million jobs.  Daniel J. Weiss, Director of Climate Strategy at the Center for American Progress Action Fund, discusses the latest CBO analysis in a post for CP.

The opponents of ACES, H.R. 2454, keep raising their estimated cost of the clean energy and global warming pollution reduction programs like some out of control auctioneer.  These wild estimates were based on either perversions or distortions of independent government or university studies, or partisan studies with rigged assumptions designed to produce an outlandish estimate.

On June 19, the Congressional Budget Office announced that the average household would spend a miniscule amount to reduce global warming pollution under H.R. 2454.  This independent analysis determined “that the net annual economywide cost of the cap-and-trade program in 2020 would be $22 billion””or about $175 per household.”  This is 48 cents per day — a little more than the cost of a postage stamp.

The least well off households — those “in the lowest income quintile — would see an average net benefit of about $40 in 2020.” These households had an income under $20,292 in 2007.

CBO acknowledges that its estimates are quite conservative (low) since the calculation “does not include the economic benefits and other benefits of the reduction in GHG emissions and the associated slowing of climate change.”

Signficantly, CBO’s estimate also does not include the economic benefits of other provisions in H.R. 2454. The American Council for an Energy Efficient Economy estimates that the efficiency provisions alone could save businesses and consumers $22 billion annually by 2020.  The savings would be $170 per household in 2020roughly equal to CBO’s cost per household estimate for ACES in 2020.

Economic models that attempt to predict the future compliance costs of pollution reduction legislation generally overestimate the actual costs.  That’s because they do not account for the vast potential for innovation and entrepreneurship once binding reductions and deadlines are set.  This would put a price on greenhouse gas pollution for the first time, which creates economic incentives to spur engineers and managers to devise technologies and methods to meet the gas reduction requirements more cheaply than estimated in the CBO’s model.

The estimated cost of compliance with the acid rain control provisions in the Clean Air Act of 1990 were much lower than EPA predicted.   The “annual cost of the program was expected to be $2.7 billion — 4.0 billion.” Yet an EPA analysis a decade later determined that the actual cost of cutting sulfur emissions by 40 percent was substantially lower”””$1 to $2 billion per year, just one quarter of original EPA estimates.”

The bottom line is that CBO predicts the net costs of the global warming reduction program in H.R. 2454 will have a relatively small cost.  And energy efficiency measures alone will save nearly as much as this estimated cost.  Conservatives that cite horrendous dollar figures are engaging in statistical demagoguery in an attempt scare enough representatives to defeat the American Clean Energy and Security Act.  Hopefully, a majority of the House will use this CBO estimates as its guide, and ignore conservatives’ imaginary estimates.

Thanks to Center for American Progress Associate Director for Housing and Economics Andrew Jakabovics.

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10 Responses to CBO stunner: Waxman-Markey cuts U.S. GHGs sharply but costs only a postage stamp a day — without counting the efficiency savings

  1. MarkB says:

    Why is this a “CBO Stunner”? It’s in line with other objective analysis. The CBO also does non-partisan analysis.

    [JR: Yes, it isn't stunning to those who follow common sense analysis. But the GOP had been trying to spin CBO as a big setback to the climate bill. But the real reason it is a stunner I'll address tomorrow.]

  2. Greg Robie says:

    The referenced report’s cover letter says these figures are in 2010 dollars. Does this mean that the consequences of the Fed’s and Treasury’s current inflation of the currency is assumed to not have economic consequences for the value of the dollar by 2020? If so, I find this problematic. Those consequences will likely render irrelevant current economic modeling by 2020 (when these estimated cost/benefit analysis is made for). Since it takes about 30 years for the effects of current lifestyle choices to be observed, isn’t the comment about what is not factored in, in terms of climate change moderation, misleading/disingenuous? It also seems to me the report assumes that most of the allowances for creating CO2 will be available at no, or low, cost in 2020.

    Consumer credit, which the economy has been based on, needs not only jobs to replace those that are gone and going, but at wages that are structured, economically, to increase. The collapsed economy was oriented to make sure wage increases happened as little as possible. Countering this systemic need of raising wages and employment opportunities, the current “recovery” efforts are centered around shoring up the financial institutions who’s abuse of fractional reserve banking has destroyed their value as social institutions.

    The CBO under its former chairman, David Walker, tried to do, relative to our deficit spending (and this was before the consumer credit bubble burst), what you are struggling to do, Joe, around klimakatastrophe. I will continue to read this report, but at first blush it looks to me like a white paper that is more whitewashing.

    We need a constitutional currency that is coined in CO2e credits whose value equitably resides with—and accrue to—the citizens of this planet, not its central banks.

  3. john says:

    Greg:

    As of 6/19 the five year inflation rate was projected to be a very low 1.6%, and the ten year rate to be 1.9%, so the first part of you comment doesn’t seem germane.

    Until recently, deflation was more likely than inflation. I know conventional wisdom has always tied deficit spending to inflation, but there is an exception — when productivity increases faster than currency expansion, then there is little danger of inflation. Many of the investments we are making in people and infrastructure improve productivity, and hence, mitigate against inflation.

    Have you been listening to Republican talking points, perhaps?

  4. john says:

    Greg:

    A couple of other thoughts — I agree with your second paragraph; David Walker was head of GAO, Not CBO.

  5. MarkB says:

    “But the GOP had been trying to spin CBO as a big setback to the climate bill.”

    That’s the polar opposite of a stunner.

    “But the real reason it is a stunner I’ll address tomorrow.”

    I look forward to that. So far I see a fairly standard non-partisan analysis.

  6. Greg Robie says:

    John,

    Thanks for the alphabet soup correction. The report was noted to be independent, so, I read GAO not CBO. The GAO is independent and the CBO is (IMHO—hasn’t the CBO have vetted what the GAO has warned to be a crisis?) beholden to Congress.

    Concerning the risk of deflation, I mostly agree—though I believe the deflation we will experience is due to credit—what our currency is denominated in—continuing to be tight. Supply and demand dynamics will trend us into deflation. Regardless, after deflation comes inflation. My head was in 2020 when crafting my above comment, which I assume will mean we have passed the deflationary period. But I was not explicit. Thanks for making the point you have.

    As I evaluate things, a credit derivatives market of $590 trillion which, at best, is severely crippled, at worst, collapsed, constitutes a financial “black hole” that requires filling for the economy of global capitalism to “recover.” With an annual global GDP (PPP) of $65 trillion, the troubled derivatives market equals the entire global economy—before the bubble bust—for 9 years. That the “black hole” has been able to be bridged for almost three years has truly awed me. Even so, the number of rule changes that have happened for this to be so has destroyed what little trust I had left that a rule of law would guide government financial policy; that justice (and karma) will be allowed to do their thing.

    In any event, isn’t deflation occurring because major banks; stress testing withstanding, are insolvent? Having all been brought/allowed to be brought under FDIC and government guarantees (and without first meeting leveraging requirements such grantees once required), the US Government is insolvent (but for printing money). Whenever there is a run on the banks and/or the dollar, the consequential mess will be socially cataclysmic. The latter will be effected when BRIC and/or OPEC activities result in a change the reserve currency. Regardless, the line to just printing money has been crossed by the US. Such is an inflationary action and makes the shift in reserve currency more likely and more imminent.

    Anyway, a “Republican” awareness, or not, it is good to understand how chaotic things have become so that the hope that is worked for is a hope than can be trusted; be just. Unless the Fed gets its way (and is authorized to issue its own currency—adding insult to injury relative to the Constitution and coining money), inflation is in our future. That future is likely at or before 2020 and relegates this CBO analysis to the role of outhouse paper.

  7. Inflation is a change in the value of money. The estimate can be stated in 2010 dollars or (in retrospect) in 2020 dollars, and both of those ways of stating the cost would be equally valid.

    Since the dollar changes in value, when we look at long term costs, we have to correct current dollar costs by converting them into constant dollars, based on some index year.

  8. shannon says:

    I think everyone can pitch in a dollar a day to help have the environment.

  9. Walter says:

    We are truly the most amazing generation. Those before us must have not been very smart. Like, 48 cents a day to solve the worlds problems.

    Either that or someone has their rose colored glasses on.