Environmental Protection

Study: Cap-and-Trade Won't Slow Economy

A new study released by Environmental Defense Fund finds a clear consensus among leading economic models that a cap-and-trade policy to cut global warming pollution is consistent with long-term economic growth. The anticipated cost of reducing greenhouse gas emissions on the U.S. economy is small, even difficult to measure against projected economic growth, the study finds.

"We can afford an ambitious climate policy for just pennies on the dollar. It's a small investment that will pay off in cleaner air, new jobs, and a safer world," said Nathaniel Keohane, Ph.D., director of economic policy and analysis at Environmental Defense Fund, and a former associate professor of economics at the Yale School of Management. "Not acting now just means paying a heavier price later as we try to manage the consequences of unchecked climate change."

What Will it Cost to Protect Ourselves From Global Warming? is the first comprehensive analysis of the leading economic modeling of cap-and-trade legislation to combat climate change.

Key findings of the analysis include:

• The overall cost of capping greenhouse gases for the average American family will amount to less than 1 percent of household budgets over the next two decades.

• The total number of jobs affected by climate policy in the manufacturing sector over 20 years is substantially below the number of jobs created and destroyed in the sector every three months.

• Household electricity and natural gas bills rise by only a few dollars a month over the next few decades – well within the rise and fall homeowners already experience.

The U.S. economy has grown nearly 3 percent per year on average in the post-war period, and that growth is projected to continue. If the U.S. capped its greenhouse gas emissions, the projected median impact of that cap on growth would be three one-hundredths of 1 percent (0.03 percent), the analysis finds.

"Put another way, our gross domestic product is projected to reach $26 trillion in January 2030. If we capped greenhouse gases, according to these studies, the economy would hit that same mark by April," Keohane said.

The study highlights the fact that none of the models takes into account the high costs of inaction. Each looks only at one side of the ledger: the costs of reducing emissions, rather than the benefits of avoiding the consequences of unchecked climate change.

"It's important to keep in mind that these forecasting models compare climate policy to a business-as-usual case that doesn't take the costs of climate change into account," said Keohane. "If we fail to take action on global warming, the future will be anything but 'business as usual.' The most expensive policy by far is to do nothing at all."

According to a recent study by the University of Maryland, runaway global warming will impact every economic sector and every region of the country, straining public budgets and impacting jobs and competitiveness.

The EDF study focuses on cap-and-trade programs that would cut U.S. emissions by 60 percent or more below current levels by the year 2050 – including the Lieberman-Warner Climate Security Act (S. 2191) currently before the Senate. The analyses surveyed were performed by five of the most highly respected economic modeling groups in government and academia, at the Energy Information Agency, Research Triangle Institute, Harvard, the Massachusetts Institute of Technology, and Pacific Northwest National Laboratories.

A key feature of the report is its broad scope. "The cardinal rule about economic models is: Never trust any single number," Keohane said. "No one model alone is a useful guide to the future, because they all make different assumptions about the factors that drive the economy." Indeed, the EDF study finds that the models vary in their "business-as-usual" forecasts for the year 2030 by 10 percent -- an order of magnitude greater than the projected impact of climate policy in that year. "In that sense, the projected impact of climate policy is well within the margin of error," said Keohane. "The models don't agree on much about what the future will look like, but they do agree that the impact of climate policy will be small."

An appendix to the report offers a detailed "Consumer's Guide to Economic Models," discussing the strengths and limitations of the economic models surveyed, as well as the key assumptions behind them. The analysis is available at http://www.edf.org/climatecosts.

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