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EPA’s Economic Analysis of the Boxer-Kerry Cap and Trade Bill

Posted By David Kreutzer, Ph.D. On October 27, 2009 @ 10:35 am In Energy | Comments Disabled

“Second verse same as the first, a little bit louder and a little bit worse.” This is the basic theme of the EPA’s analysis of the shrouded Boxer-Kerry Bill [1](S. 1733).

Given just 12 days to analyze the Boxer-Kerry climate bill (that others were not allowed to review), the EPA relied on previous analysis and the similarities between Boxer-Kerry and previous climate bills, most notably Waxman-Markey (H.R. 2454). Comparing S. 1733 to H.R. 2454 they conclude [1](page 28):

While there are some minor differences in the bills in several areas that will likely result in slightly higher costs for S. 1733, these differences are overshadowed by the fundamental similarities in approach, caps, offsets, and other critical design parameters that affect the costs.”

Preliminary analysis by the Heritage’s Center for Data Analysis comes to the same basic conclusion: Though we disagree on the magnitudes, we agree that the Senate bill is very similar and a little worse than the House version.

The numbers most likely to be repeated from the EPA analysis are the same misleading numbers repeated from the analysis of Waxman-Markey. However, before reviewing the analysis, one point needs to be made crystal clear—there is no green stimulus here.

Even the most generous scenario in this EPA report shows that there will be costs forced on the economy—higher energy prices and lost income. For every year reported, household consumption drops compared to a world without Boxer-Kerry. This is a climate bill and, even according to the EPA, it will reduce economic activity. Spinning this as a job-creating, green stimulus bill is an act of fraud.

What will be the real costs? The Heritage analysis finds aggregate GDP losses (adjusted for inflation to 2009) grow to $9.6 trillion—an average loss of about $400 billion per year. Note that Heritage only projects impacts for the first 24 years of the 40-year program. The full 40-year cost will obviously be much higher.

The legislation pushes more than 1.8 million onto the unemployment rolls in 2012 and ultimately raises unemployment by over 2.7 million. This is net of any green jobs.

Energy costs rise. Even after adjusting for the purchase of more expensive energy-saving appliances, even after consumers drive less and adjust their thermostats, family energy expenditure rises by nearly $900 dollars per year—a total of more than $21,000 for the 24 years analyzed. Again, these figures have already been adjusted for inflation.

The EPA on the other hand reports results that amount to tens of billions of dollars per year. As with their analysis of Waxman-Markey, the EPA analyzed the economic impacts of several scenarios for Boxer-Kerry—from extremely unrealistic on one end to much more realist on the other. However, in the current report they present the economic cost of only one unrealistic scenario.

This particular scenario depends on three extreme assumptions. First, nuclear power generation must nearly double in the first 25 years. This is the equivalent of about 100 additional nuclear power plants. In the past 30 years, not one new nuclear power plant has been licensed and Boxer-Kerry (like Waxman-Markey) makes little to no provision for eliminating the legal and political barriers to the nuclear renaissance necessary for this EPA analysis.

Second, the EPA assumes that technology for capturing and storing the carbon dioxide emitted from coal-fired power plants will be fully commercialized in the next 15 years. Pilot projects are still on the drawing boards. Further, even after the extraordinary technological and economic hurdles have been cleared, the political and environmental obstacles to storing tens or hundreds of millions of gallons of liquid CO2 each day must be overcome.

Third, the EPA assumes nearly two billion tons of CO2 can be emitted beyond the caps set by the legislation because we will pay others to cut their CO2 emissions. Known as offsets, some of these cuts are to be made in the U.S., while many more are expected to be provided abroad. The results from current offset programs elsewhere are so unsatisfactory, that Boxer-Kerry devotes 90 pages to specifying the structure for establishing the stultifying regulations for offset certification, verification and trading. The theoretical availability as outlined in the earlier part of the bill is a long way from the actual availability of the offsets necessary for the EPA’s analysis. On page 20 of their report, the EPA makes clear [1]that offsets are not a done deal:

“There are many institutional design issues, including the measurement, monitoring, reporting and verification requirements, surrounding estimates of offset availability. These issues must be addressed to ensure that the offset reductions are truly incremental, and represent real reductions.”

On the same page, the EPA acknowledges the great uncertainty of offsets and their projected economic impacts [1]:

Additionally, the cost and availability of offsets, particularly international offsets, is one of the greatest uncertainties in forecasting the cost of climate legislation.”

Gambling trillions of dollars in family income and millions of jobs on any of these strained assumptions would be a great risk. Relying on all three seems unconscionable.


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URL to article: http://blog.heritage.org/2009/10/27/epa%e2%80%99s-economic-analysis-of-the-boxer-kerry-cap-and-trade-bill/

URLs in this post:

[1] EPA’s analysis of the shrouded Boxer-Kerry Bill : http://www.epa.gov/climatechange/economics/pdfs/EPA_S1733_Analysis.pdf

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