TCS Daily

Cost Effective

By James K. Glassman - October 31, 2003 12:00 AM

By a vote of 55 to 43, the U.S. Senate last week defeated a bill that would have imposed mandatory restrictions on emissions of carbon dioxide, raising the energy bills of all Americans and slowing the economy.


The margin of defeat for the legislation, introduced by Sens. John McCain (R-Ariz) and Joe Lieberman (D-Conn), may have been even wider if some Senators had not been under the mistaken impression that bill would cost their constituents practically nothing.


The Wall Street Journal gave McCain important space on its op-ed page on the day of the vote. The piece carried the headline, "Fight Global Warming for $20 a Year." That is the cost of the economic damage, per household, estimated in a study by the Massachusetts Institute of Technology.


The study, however, is suspect on several counts. On Wednesday, a separate study, by Charles River Associates (CRA), a respected economic consulting firm, found that the cost of the McCain-Lieberman bill would be a minimum of $350 annually per household through 2010, rising to $530 per household by 2020. Using its peer-reviewed model, Charles River also found that, under other assumptions, the cost could rise to as high as $1,300 per year per household. McCain made no mention of this study in his article.


On its face, the figure of $20 per household seems preposterous. The bill, a sort of "mini-Kyoto," would cap nearly all greenhouse-gas emissions -- the result of burning any fossil fuel -- at their year-2000 levels by 2010. In order to meet the restrictions, energy output would have to be reduced, the price of electricity would rise by 7 percent to 12 percent and the price of refined petroleum products, like gasoline, by 12 percent to 16 percent. The cost of coal, America's most plentiful energy resource, would soar between 51 percent and 140 percent.


According to Charles River Associates, not only would consumers have to pay more for energy, they would also have to pay higher taxes. In addition, jobs would be lost.


It is one thing for McCain and Lieberman to say, honestly, as many environmentalists do, that people face a tradeoff: If we reduce our emissions, it will be costly, but it's a worthy cause since the earth is warming. It is quite another to claim, as McCain did, that reducing emissions constitutes a free lunch.


McCain is well aware of the CRA research. On June 18, Anne Smith and Paul Bernstein of Charles River and John Reilly of MIT met with McCain and Lieberman staffers. A subsequent memorandum from the CRA and MIT researchers described the differences between the two models.


CRA's model takes into account the fact that "the actual reduction in consumption caused by a carbon cap in a particular year will depend not only on that year's cap, but also on expectations of future costs." In other words, consumers will not expect the cap to come off in 2010 (nor will it), so they make decisions (that is, reduce their consumption) in anticipation of long-term limits. This is a basic principle of economics.


The CRA model also makes the assumption that, since a slower economy and fewer jobs will reduce tax revenues, the government will have to raise taxes -- another cost to consumers.


The study, commissioned by the Tech Central Science Foundation, was given a full hearing on Wednesday at the American Enterprise Institute. On the panel, in addition to Smith of CRA, was Billy Pizer of Resources for the Future, who critically dissected the research. A person who identified himself as a representative of the Pew Center on Global Climate Change was among those in the audience who asked Smith questions.


Later on Wednesday, Pew, an aggressive advocate of McCain-Lieberman, issued a "fact sheet" criticizing the CRA study. The sheet willfully ignored Smith's answers to questions by the Pew representative at the earlier AEI session, and it ignored the joint memorandum to the staffers.


In 1997, the Senate, by a vote of 97-0, approved the Byrd-Hagel resolution, which stated that "the United States should not be a signatory to any protocol" that "would result in serious harm to the economy of the United States." McCain-Lieberman would certainly result in such harm. Its rejection yesterday was a vote for consistency, sound science and a strong economy.


Currently, there is no conclusive evidence that the rise in surface temperatures, by one degree Fahrenheit, over the past century was caused by human-induced greenhouse-gas emissions. In fact, satellite observations show that, just about the Earth's surface, there has been no temperature increase over the past quarter-century. Under the greenhouse theory of warming, significant increases would have been present.


Mandatory measures like McCain-Lieberman -- and the more stringent laws that would inevitably follow -- would harm not just the U.S. economy but also the economies of the poorest nations, the ones that need inexpensive and abundant energy to lift their citizens out of poverty and improve their environments.


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