Latest Economic Analyses of Lieberman Warner Don’t Account for Future Innovation

Two more studies were released late last week on the potential economic effects of the Lieberman Warner Climate Security Act—one from the National Association of Manufacturers and American Council for Capital Formation; the other from the EPA. While they don’t dish out the alarmism in equal doses—the NAM report is full of far scarier predictions—both fail to give the kind of robust economic analysis that could give lawmakers and the American public an accurate look at our future under the bill.

The fact is that if the Lieberman Warner Climate Security Act is enacted, both of these studies will prove to be totally wrong.

Why? The short answer is that they predict future clean up results and costs based on a snap shot of current technologies. And history has taught us that industry almost always finds better, and cheaper ways to meet requirements. We can call this the innovation factor.

The best correlating example of how this has played out in the past is the Clean Air Act of 1990. The bill laid out a program for reducing the sulfur emissions that cause acid rain that is very similar to the carbon cap-and-trade program proposed by the Lieberman Warner bill.

Studies released in advance of the Clean Air Act vote in Congress predicted significant economic costs, including compliance costs of $2.7 to 4.0 billion a year, sulfur credits in excess of $700, increased electricity rates, and job losses. Yet when the final tallies came in, it turned out that the actual costs were only one tenth of what studies predicted; electricity prices actually went down; and the fewer-than-expected coal mine job losses were actually due to productivity improvement and other economic factors.

The Lieberman Warner Climate Security Act is far from perfect. It could require more greenhouse gas reductions in the early years and by 2050. It gives away, rather than auctions off, too many allowances early on, which could decrease the revenue to aid low and middle income families, invest in clean energy, and help developing nations adapt to the effects of global warming. And it fails to establish a new source performance standard for all new coal fired power plants to speed the development and deployment of carbon capture and storage technology.

Yet even with these shortcomings, history tells us that the bill will provide a strong and respectable first step in the urgent effort to reduce global warming pollution.

Tags: Climate Change, Energy

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