Waxman-Markey clean air, clean water, clean energy jobs bill creates $1.5 trillion in benefits

As award-winning journalist Eric Pooley concluded in a comprehensive study of the media’s mistakes and biases during the Lieberman-Warner climate bill debate, “The press failed to perform the basic service of making climate policy and its economic impact understandable to the reader and allowed opponents of climate action to set the terms of the cost debate. The argument centered on the short-term costs of taking action-i.e., higher electricity and gasoline prices-and sometimes assumed that doing nothing about climate change carried no cost.”  See How the press bungles its coverage of climate economics “” “The media’s decision to play the stenographer role helped opponents of climate action stifle progress.” The following repost from guest blogger Daniel J. Weiss, a Senior Fellow and Director of Climate Strategy at the Center for American Progress Action Fund, looks at a new study that aims to help address the flaw in economics coverage.

Other Side of the Coin

A new analysis of clean energy legislation finds that it will produce likely economic benefits of $1.5 trillion. The finding by the New

York University School of Law’s Institute for Policy Integrity explains that the Waxman-Markey American Clean Energy and Security Act (H.R. 2454) is “cost”benefit justified under most reasonable assumptions about the likely social cost of carbon.'” In “The Other Side of the Coin: The Economic Benefits of Climate Legislation,” the Institute for Policy Integrity finds that the “benefits of H.R. 2454 could likely exceed the costs by as much as nine-to-one”:

Using conservative assumptions, the benefits of H.R. 2454 could likely exceed the costs by as much as nine-to-one, or more. The estimated benefits do not include a significant number of ancillary and un”quantified benefits, such as the reduction of co”pollutants (particularly sulfur dioxide and nitrogen dioxide), the prevention of species extinction, and lower maintenance costs for energy infrastructure. Due to those limitations, the benefits estimates should be considered to be very conservative.

The cost-benefit analyses of environmental safeguards generally favor the costs since they are relatively easy to measure. The economic benefits, however, of reduced pollution are much harder to calculate. The price of a scrubber to reduce sulfur and particulate pollution from a coal fired power plant is easy to calculate, but it is much harder to account for the value of a protected stream or restored vista.

Even the federal government often projects costs while ignoring benefits of clean energy proposals. For instance, the Congressional Budget Office’s assessment of the American Clean Energy and Security Act notes that its analysis “does not include the economic benefits and other benefits of the reduction in GHG emissions and the associated slowing of climate change.”

The “social cost of carbon” is the “the monetary valuation of incremental damage from each ton of greenhouse gas emissions.” The new IPI analysis employs a recent Department of Energy estimate that the “monetary values of the benefits of carbon dioxide emission reductions, otherwise known as the Social Cost of Carbon (SCC) [are] “¦$19 per metric ton of carbon dioxide.” This estimate was developed by an interagency task force, and was employed in a Department of Energy rule for more energy efficient vending machines issued on August 31st.

Using the value of $19 per ton of carbon pollution avoided, the authors determined that the total midrange projection of Waxman-Markey’s benefits is $1.5 trillion total between 2012-2050. Projections estimate that the legislation would require $660 billion in investment during this time, which means that benefits are at least two times greater than costs:

At the SCC values preferred by the Department of Energy, the direct benefits of H.R. 2454 are more than double the costs. Using SCC values that have a more appropriately low discount rate built in (EPA’s 2% figures), direct benefits are nearly eight to nine times greater than costs.

Even these projections are very low because the estimated SCC employed in the analysis excludes the value of a number of important benefits. It excludes the reduction of other harmful pollutants released along with greenhouse gases from coal fired power plants, such as soot and mercury. It does not estimate the cost of fewer tropical diseases or respiratory ailments from smog, or less political unrest in volatile regions.

Special interests that defend the status quo and oppose clean energy programs are quick to trot out their studies predicting economic Armageddon due to enormously inflated costs. Never mind that most of these industry studies are riddled with false assumptions and ideologically driven guess work, and are often proven wrong over time.

Until now, advocates of progress have had few estimates of economic benefits of action. This is a credible estimate of the benefits of action, and it far outweighs the investment cost of building a clean energy economy. The Environmental Protection Agency must take the next step by conducting a more thorough, rigorous analysis of benefits to conclusively demonstrate that Americans will have a net economic benefit from clean energy and global warming legislation.

Update: A new report by the Union of Concerned Scientists finds that “global warming inaction could cost the nation hundreds of billions by the end of the century.”

Here is some additional analysis from Stewart J. Hudson, President of the Emily Hall Tremaine Foundation:

This study is a great resource because of its singular focus””rather than look at benefit creation in the abstract, it examines legislation already passed in the U.S. House of Representatives, HR2454, and puts a numerical value on the social benefits that would occur once the legislation is fully implemented. Among the most important conclusions of the study:

˜ The social cost of carbon that it calculates …  suggests that “the benefits of HR2454 could likely exceed the costs by as much as nine-to-one, or more.”

˜ The methodologies it employs, and the discount rates it assumes, lead it to underestimate rather than overestimate the benefits it identifies

˜ By focusing on actual legislation, rather than theoretical ideas, it makes the case that an even more ambitious approach to climate protection and clean energy would provide for an even more robust array of social and economic benefits to society

A report this important will always attract critics, and they might well take aim at the fact that the report looks at the global, rather than merely domestic distribution of the social benefits from climate protection.

This leads to an obvious critique””if costs borne by the United States create benefits that occur globally, is this study’s cost curve a reliable basis for affecting U.S. domestic policy? Said differently, won’t we end up paying for benefits we don’t receive?

That might seem like a reasonable question to ask, but there’s a flaw that makes it less than compelling.  That’s because it assumes that other nations are simply free riding on the US efforts identified in HR2454. In point of fact (and this is a very important and underreported story) many other nations with whom we share the planet are already doing far more than we are on climate protection “¦ and are paying for social benefits that are distributed globally, rather than just within their borders.

In the vernacular, it’s difficult to see how critics can lay a glove on the findings of this study even thought it’s all but certain they will try to delegitimize its major findings.  For those brave souls who read the study with an open mind the take away is this””even a conservative estimate of the other side of the coin demonstrates that the benefits of climate protection outweigh the costs; and the more of it we do, and do right, the better that benefit-cost ratio becomes, not just here at home, but around the world.

5 Responses to Waxman-Markey clean air, clean water, clean energy jobs bill creates $1.5 trillion in benefits

  1. Jeff Huggins says:

    Ya Know What?!

    Speaking of making economics clear . . .

    I’ve read some very helpful pieces recently by Paul Krugman (as this audience knows), Joseph Stiglitz (a very recent piece in The Financial Times), and some in The Economist, a few issues back, about the state of economics today.

    They’ve all been very helpful in all sorts of ways.

    Yet, there’s something BIG missing in relation to the present urgent matter.

    Economists seem to have a problem making one very urgent point crystal clear.

    Can leading economists bring themselves to say — and muster the communications ability to say:

    “Ya know what? You just CANNOT expect a market — no matter how “perfect” you think it is — to address the climate problem as long as it’s free to put carbon dioxide into the air for free. Take it from me. Period. End of story.”

    “I repeat . . . (and then the economist would repeat, ideally in CAPS the second time)”.

    Then of course, a clear explanation can follow.

    Why do economists seem to have such a hard time making sure that the public at least understands “thing one” about markets? Even when doing so is so darn important.

    At this stage (given the window of time between now and the Senate deliberations and the Copenhagen talks), it’s really not all that important for the general public to form a view on saltwater economics or freshwater economics. Nor is it key for the public to figure out precisely how to achieve the best balance between financial freedom and responsible oversight.

    Instead, what’s important (and urgent) is for the public not to be fooled (by all the people trying to fool them) into thinking that a free marketplace, completely unregulated, and without a “price” on carbon, can solve our problems if it is (and we are) just creative enough and so forth.

    At this stage, not only should ALL economists be straightening out the public understanding of this, but this matter should be communicated via cartoons, late-night TV (use a joke), milk cartons, sky writing over the beaches, and coupons at McDonalds.

    Please: Can economists just speak clearly and loudly on this, and say: “Ya Know What . . .”



  2. Ken Johnson says:

    Is the nine-to-one benefit/cost ratio based on the premise that we (a) avert climate catastrophe, or (b) do not avert climate catastrophe?

    What is the probability of averting catastrophe with H.R. 2454?

  3. Jay Turner says:

    Even delaying climate catastrophe has great value–since it gives us more time to deal with the issue. Don’t use the gaping imperfections in HR2454 as an excuse to do nothing. It has enormous value even if all it does is pave the way for more effective measures. Breaking the logjam that has prevented meaningful climate policy from being enacted would be a huge victory all on its own. That there are huge economic benefits even to do as much as the House bill does makes it all the more compelling.

  4. Ken Johnson says:

    I agree with you that HR2454, with all its faults and imperfections, will be a positive step forward if it breaks the logjam of inaction and paves the way for more effective measures. My concern is whether it might conversely create a logjam blocking more effective measures by locking us into a fundamentally ineffective an irrational regulatory framework.

    Case in point: California has enacted five new legislative initiatives, continuing the state’s leadership in promoting clean renewable energy. But under HR2454, will any of these measures have positive environmental impacts, or will the emission reductions resulting from such actions only free up surplus emission allowances that will allow, e.g., more coal burning in Ohio?

    There are many under-exploited opportunities for low-cost emission reductions, which have been discussed at length on (e.g., efficiency, use of NG as a transition fuel). Cap and trade operates to nullify any potential environmental benefit of such opportunities, and focuses regulatory incentives on further cost reduction — not further emission reduction — even if the benefits of further emission reductions would exceed costs by “nine-to-one, or more”.

    HR2454 would deny you the ability, and the right, to take action to reduce your individual carbon footprint, without allowing the emission reductions resulting from your action to be traded for equivalent emission increases elsewhere. The same applies to corporations, cities and states, unless some mechanism is effected to capture and retire surplus emission allowances resulting from actions such as California’s initiatives. Without some such mechanism, cap and trade would operate, in effect, to convert complementary GHG-reduction actions into subsidies for fossil-fuel industries.

    Considering the potential catastrophic consequences of climate change, and the potentially low cost of GHG-reduction measures, can any rational case be made for a regulatory system that will, by design and by intent, subvert and nullify any attempts to reduce emissions beyond a predetermined, inadequate reduction target?

  5. James Roumasset says:

    I suspect the following flaws in the study.
    1. Whether the present value is positive or negative depends largely on what the optimal trajectory of carbon prices is. If Waxman-Markey imposes higher implicit carbon prices than optimal, green net national product will shrink, even before considering all the distortionary mandates and subsidies (think Cash for Clunkers).
    2. Benefit cost analysis requires first or second-best prices. No one knows what those prices are.
    3. Goulder’s recent study found that 80% of the carbon reduction effects in the 14 states that have already passed carbon reduction legislation will leak to other states. Let’s say that only 50% of WM reductions will leak. Already that reduces global benefits in half. (This does not depend on the assumption that other nations are “free riding” only on a realistic estimate of global participation, e.g. the fraction of world exports from participating countries.)
    4. $19 per ton represents global benefits. The U.S. share of those benefits is much less.
    5. Job creation by Spain’s green job program have been estimated as 2.2 jobs lost for every green job created. The static effects of the program are to shrink green net national product.
    6. The dynamic effects of the distortionary mandates and subsidies include less specialization and growth externalities implying a lower growth rate. (An optimal and untrammeled carbon tax or C&T program with 100% participation would have the reverse effect.)