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All Cost, No Benefit

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All Cost, No Benefit

Lewis Op-Ed in Tech Central Station

Tomorrow, the Senate Energy and Natural Resources Committee will hold a hearing on Sen. Jeff Bingaman's (D-N.M.) Climate and Economy Insurance Act. Originally an amendment to the Senate energy bill, Bingaman withdrew this legislation from consideration after its more aggressive cousin, the McCain-Lieberman Climate Stewardship and Innovation Act (S. 1151), went down to defeat by 60-38, losing by five more votes than did an earlier version in October 2003. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Proponents characterize the Bingaman plan as the moderate middle between the Bush Administration's "no action" approach to global warming and the Kyoto Protocol. The rhetorical slight of hand here is to equate "action" with "regulation." Yes, the Bush policy is non-regulatory. But those wielding the power of the purse should be the last to define "action" so narrowly. Under Bush, the U.S. Government spends more on climate-related science and technology than all other countries combined.

Unsurprisingly, Sens. John McCain (R-Ariz.) and Joseph Lieberman (D-Conn.) also describe their legislation as a "modest first step" to address global climate change. And indeed, many climate activists and European Union officials describe Kyoto itself as a small first step in a series of measures to control greenhouse gas emissions, chiefly carbon dioxide (CO2) from fossil fuel combustion.

In reality, neither the Bingaman bill nor any version of the McCain-Lieberman legislation represents the moderate middle. Such proposals are:

  • Radical measures that would institute a sharp break with previous U.S. policy;
  • All economic pain for no environmental gain; and
  • Camel's-nose-under-the-tent strategies to break the political ice for Kyoto-inspired litigation and regulation.

Bipartisan Rejection of Kyoto

In the United States, the Kyoto Protocol has been politically defunct since 1998. In July of that year, Tom Wigley of the National Center for Atmospheric Research calculated that Kyoto implemented on a constant basis by all industrial countries would avert only 0.07°C of global warming by 2050 [1]—too small an amount for scientists to detect. In October 1998, the U.S. Energy Information Administration (EIA) estimated that Kyoto would reduce U.S. GDP by approximately $100 billion to $400 billion in a single year (2010), depending on the availability of emission credits from abroad.[2]

Kyoto, in short, is all economic pain for no environmental gain. President Clinton, realizing that few Senators would vote to gamble with the U.S. economy for a hypothetical and unverifiable 7/100ths of a degree reduction in global temperatures 50 years hence, declined to submit the treaty to the Senate for its advice and consent to ratification.

Kyoto-by-Inches Is Just as Foolish

Ever since the Wigley and EIA analyses, climate alarmists have tried to sell the public on scaled-down policies that cost less than Kyoto but that, if adopted, would have the political virtue (in their eyes) of establishing the critical legal precedents and regulatory machinery.

These proposals employ the same basic Kyoto strategy to limit carbon-based energy use—an emissions cap-and-trade program. Whereas Kyoto would require the United States to reduce GHG emissions to 7 percent below 1990 levels during 2008-2012, the original McCain-Lieberman bill (S. 139) would require reductions to 1990 levels by 2016. The version defeated 60-38 on June 22, 2005, like the version defeated 55-43 on October 30, 2003, would require reductions to 2000 levels by 2010. The Bingaman cap-and-trade program would reduce U.S. GHG intensity (emissions per dollar of GDP) by 2.4 percent per year, allowing aggregate emissions to increase, albeit more slowly than otherwise projected.[3]

Bingaman's plan would do less economic damage than the McCain-Lieberman bills, but it would also avert less global warming. Yet the total cost of any of these proposals is still huge. Whether the proposal is Kyoto, Kyoto Lite (McCain and Lieberman's original bill, S. 139), Kyoto Extra Lite (their pared-back versions, S.A. 2028 and S. 1151), or Kyoto-by-Inches (Bingaman's Climate and Economy Insurance Act), carbon-energy rationing is still a costly exercise in futility, as the following Table shows.[4]

 

Policy<?xml:namespace prefix = u1 />

Tons GHG Reduced 2050 (a)

GW Avoided 2050 (a)

Tons GHG Reduced 2050 (b)

GW Avoided 2050 (b)

Cum GDP Loss to 2025

S. 139

31,399

0.04

16,928

0.023

$1,354 billion

S. 1151

21,285

0.029

11,320

0.015

$776 billion

Bingaman

5,816

0.008

3,163

0.004

$331 billion

GHG reductions are in million metric tons carbon equivalent;GW avoided is in degrees Celsius

 

The above Table is partly based on Wigley's Kyoto analysis, which implies that a 50,513 million metric ton reduction in carbon emissions would avert 0.07°C of global warming by 2050.[5] Estimates of emissions reduced[6] and associated costs[7] come from EIA analyses. The (a) columns make the very favorable assumption that the McCain-Lieberman and Bingaman programs would permanently lower the U.S. emissions baseline such that the last year's required reduction (in 2025) recurs as avoided emissions in every subsequent year.[8] The (b) columns make the reasonable alternative assumption that although there would be some residual lowering of the U.S. emissions baseline, the program would not reduce more emissions after it terminates (in 2025) than it did during the two decades when the cap was in effect.

At best, Sen. Bingaman's plan would avert a hypothetical and imperceptible 0.008°C of global warming by 2050, and might avert only 0.004°C. Either way, the plan would not benefit people or the planet one whit.[9] However, it would cost $331 billion in cumulative GDP losses. Don't the American people have better things to do with $331 billion?

EIA's gratuitous editorial comment that the proposed cap and the associated $20 billion annual expense would not "materially affect"[10] U.S. economic growth rates is beside the point. Taxpayers could also pay people $20 billion a year to dig holes and fill them up again, and that too would not "materially affect" economic growth. However, it would be a colossal waste of resources.

Another way to see why Sen. Bingaman's plan is all cost for no benefit is to compare the quantity of CO2 emissions it would avoid with the projected increase in developing country emissions. During 2010-2025, the Bingaman plan would avoid 2,070 million metric tons of CO2.[11] During the same period, EIA projects that cumulative developing country CO2 emissions will increase by 40,671 million metric tons.[12] In effect, we would be spending $331 billion to remove a drop from a rapidly filling bucket.

Radical Break, Not Modest Step

Claims that Sen. Bingaman's plan is "modest" because it would cost less than Kyoto or McCain-Lieberman are disingenuous. The plan would institute a radical break with all previous U.S. policy. It would regulate CO2—something the U.S. Government has never done, and for good reason. Carbon dioxide is the inescapable byproduct of the carbon-based fuels—coal, oil, natural gas—that supply roughly 85 percent of all U.S. energy. The power to regulate CO2 is literally the power to restrict the American people's access to energy, and, thus, cripple U.S. productivity, competitiveness, and growth.

If that sounds a bit abstract, consider that EIA forecasts U.S. electricity consumption to grow by more than 35 percent during 2003-2025, with more than 75 percent of the increase supplied by carbon-based fuels.[13] Consider also that in EIA's 1998 Kyoto analysis, under the most stringent implementation scenario (i.e., no international emissions trading) the price of gasoline almost hits $2.00 a gallon.[14] Gasoline prices are higher today, yet carbon emissions from motor vehicles continue to rise. Clearly, significant limitations on U.S. carbon emissions cannot be accomplished during the next two decades without imposing draconian restrictions on electricity supply and personal mobility.

In politics, "The most important part of the fight is to decide what it is about."[15] Up to now, the fight has been about whether the U.S. Government should suppress access to carbon-based fuels. Enacting any carbon cap, however "modest" in size, would fundamentally change the nature of the fight. From that point on, Congress would continually have to debate how much and how fast to suppress fossil energy use. This would be disastrous for consumers and the economy.

Furthermore, the proposal's adoption would usher in an era of Kyoto-inspired litigation. For the first time, U.S. law would classify CO2 as a regulated pollutant. This would strengthen lawsuits to compel compliance with Kyoto-style curbs on fossil energy. For example, a dozen state attorneys general (AGs) and 14 environmental groups sued the U.S. Environmental Protection Agency for rejecting a petition to regulate CO2 emissions from motor vehicles.[16] A three-judge panel, by a bare (2-1) majority, upheld EPA's authority to reject the petition.[17] Enact the Bingaman plan, and the AGs' lawsuit would instantly gain legal—although not scientific—merit, setting the stage for litigants to demand CO2 controls on all sectors and sue energy-intensive U.S. firms for flood- and weather-related damages allegedly caused by global warming.

Like the McCain-Lieberman bills, the Bingaman amendment is a camel's-nose-under-the-tent strategy to align U.S. law with Kyoto's aims and mechanisms. The job of all such proposals is to break the political ice for economy-chilling litigation and regulation. The accompanying cartoon, published in October 2003, shortly before the first vote on the McCain-Lieberman legislation, makes the issues crystal clear:

 

<?xml:namespace prefix = u2 />Questions for Sen. Bingaman

According to the environmental news service Greenwire, two labor unions that oppose Kyoto and McCain-Lieberman—the United Mineworkers and United Steelworkers—said they would support the Bingaman plan, because "it would cause less economic harm than other approaches."[18] Some endorsement! The unions might as well say they like Bingaman's proposal because it represents a fraction of a bill (or a still smaller fraction of a treaty) that would do nothing except harm the economy. They overlook the key fact: The Bingaman proposal serves no intelligible purpose except to create the legal framework and build the political momentum for more aggressive energy-suppression measures that would ultimately cost thousands of mineworkers and steelworkers their jobs.

Sen. Bingaman calls his proposal "climate insurance," but it is more akin to insurance fraud. During 2005 through 2025, Americans would be paying $331 billion in premiums for no discernible benefit. If the program continues, premiums would rise after 2025, but by how much proponents aren't saying. Real insurance alleviates financial hardship when misfortune strikes. If we spend $331 billion, and harmful climate change occurs, whether due to natural variability or "anthropogenic interference," the Bingaman program provides no financial succor. On the contrary, it leaves us $331 billion poorer to deal with whatever misfortunes Man or Nature throws our way. To call this plan "insurance," is false advertising.

The unions, journalists, and Sen. Bingaman's colleagues should be prepared to ask the Senator some tough questions:

  • How much global warming would your plan avoid? If it would avert only 0.008°C of warming, or even less, then what is the point of investing any resources in it at all? Is an unverifiable 0.008°C reduction of average global temperatures 45 years from now really worth $331 billion in cumulative GDP losses?

  • Since the plan will have no measurable public health or ecological benefit, is the real objective to establish the legal precedents and regulatory machinery for more costly restrictions on carbon-based energy?
  • How much global warming does Sen. Bingaman believe we must ultimately avert to save the planet—2.5°C, 4.5°C, more? If the plan accomplishes only about 1/250th of the real objective, then how many steps beyond his current proposal does he want U.S. firms to take?
  • Finally, how much would those subsequent steps cost—in lost GDP, higher consumer energy prices, and lost jobs?

Sen. Bingaman's colleagues—and the public—deserve answers to those questions.

[1] Wigley, T.M.L. 1998. The Kyoto Protocol: CO2, CH4 and climate implications. Geophysical Research Letters, Vol. 25, No. 13: 2285-88.[2] EIA, Impacts of the Kyoto Protocol on U.S. Energy Markets and the Economy, October 1998, Table ES-1, p. xv. EIA's estimate is in 1992 dollars.[3] EIA, Impacts of Recommendations of the National Commission on Energy Policy, April 2005, Table 3. Summary of Greenhouse Gas Emission Scenarios, 2015 and 2025, p. 16, http://www.eia.doe.gov/oiaf/servicerpt/bingaman/pdf/sroiaf(2005)02.pdf. [4] GDP loss estimates for S. 139 and S. 1151 are in 1996 dollars. GDP loss estimate for Bingaman's amendment is in 2000 dollars.[5] Wigley (Table 1, p. 2286) lists emission reductions in 2005, 2010, 2015, 2020, 2025, 2050, 2075, and 2100. I use the implied compound interest rates to calculate reductions in the intervening years and the cumulative reductions to 2050.[6] Emission reductions from S. 139 and S.A. 2028 during 2003-2025 are available in EIA, Analysis of Senate Amendment 2028, the Climate Stewardship Act, Figure Data for Figure 1, http://www.eia.doe.gov/oiaf/analysispaper/sacsa/index.html. S.A. 2028 is the McCain-Lieberman bill voted on in October 2003. It has the same reduction target as S. 1151, voted on in June 2005. Emission reductions from Bingaman's cap-and-trade proposal during 2003-2025 may be computed from EIA Spreadsheet Tables AEO2005 Reference Case and Greenhouse gas policy, with safety valve, http://www.eia.doe.gov/oiaf/servicerpt/bingaman/index.html. I am grateful to CEI Intern Alex Kormendi for his assistance with these and other calculations.[7] The cumulative cost of the McCain-Lieberman bills, in 1996 dollars is in EIA, Table 3. Economic Impacts of S. 139 and S.A. 2028, http://www.eia.doe.gov/oiaf/analysispaper/sacsa/pdf/tbl3.pdf. The cumulative cost of Bingaman's plan (in 2000 dollars) may be computed from EIA Spreadsheet Tables AEO2005 Reference Case and Greenhouse gas policy, with safety valve, http://www.eia.doe.gov/oiaf/servicerpt/bingaman/index.html. [8] EIA estimates that, from 2003-2025, S. 139 avoids 8,464 mmtce; S.A. 2028, 5,660 mmtce; and Bingaman cap-and-trade, 1,581.5 mmtce. For (a), I assume that whatever reduction is achieved in 2025 recurs as avoided emissions every year during 2026-2050. In 2025, S. 139 lowers emissions by 915 mmtce; S.A. 2028, 625 mmtce; and Bingaman cap-and-trade, 170 mmtce.[9] I am indebted to Jerry Taylor of the Cato Institute for this formulation and the general line of argument developed in this paper. See his Energy Efficiency: No Silver Bullet for Global Warming, Policy Analysis No. 356, October 20, 1999, http://www.cato.org/pubs/pas/pa356.pdf. [10] EIA, Impacts of Recommendations, p. xi.[11] EIA Spreadsheet Tables AEO2005 Reference Case and Greenhouse gas policy, with safety valve, http://www.eia.doe.gov/oiaf/servicerpt/bingaman/index.html. [12] Author's calculation based on EIA, World Energy-Related Carbon Dioxide Emissions by Region, http://www.eia.doe.gov/oiaf/ieo/excel/figure_18data.xls. [13] Author's calculation, Electricity generation by fuel, 1970-2025, http://www.eia.doe.gov/oiaf//aeo/excel/figure5_data.xls. [14] Statement of Jay Hakes, Administrator, before the Senate Energy and Natural Resources Committee, March 25, 1999, Figure 6, http://www.eia.doe.gov/neic/speeches/sentest325/testv7.html. [15] E.E. Schattschneider, The Semi-Sovereign People: A Realist's View of Democracy in America (1960).[16] Plaintiffs' brief is available at http://www.earthjustice.org/news/documents/6-04/globalwarmingbrief.pdf. For a critique, see Marlo Lewis, "Crazy on Carbon Dioxide" (Revised), April 21, 2005, http://www.cei.org/pdf/4501.pdf. [17] http://www.eenews.net/Greenwire/Backissues/images/071505gwr6.pdf. [18] Brian Stempeck, "McCain to offer climate plan as energy amendment," Greenwire, May 18, 2005.