TCS Daily

Here We Go Again

By Iain Murray - June 15, 2004 12:00 AM

John McCain just won't stop. He and someone else once favored by Democrats as a Vice-Presidential candidate, Joe Lieberman, look likely to have their Climate Stewardship Act (S.139) considered once again by the US Senate, despite it having been defeated 43 to 55 just last October 30. Other Senators, who invest years of effort in getting their pet proposals to the floor, must be somewhat jealous of McCain's parliamentary abilities. This time, with Democrats more willing in an election year to vote for a proposal that would damage the President, chances for success look far greater.

Unless, that is, the Senators stop to consider just how much the proposal would cost their constituents, at which point they might have second thoughts. The truth is that S.139, which will do nothing at all to stop any global warming that may be occurring as a result of man's actions, would cost more than two Iraq wars if we had to pay for it now. That's because the plan to reduce greenhouse gas emissions would suppress energy use, leading to job losses and lower incomes.

New analysis by the Energy Information Administration (EIA), which is the independent analytical arm of the Department of Energy, estimates a cost of $776 billion up to 2025 (or $290 billion in present value). The analysis is timely, given that EIA's estimate of the total costs of S. 139 as originally introduced was a principal factor in Sens. Lieberman and McCain's decision to drop the second phase of emissions reductions when they offered their bill last October. The proposed amendment would cap greenhouse gas emissions at 2000 levels by 2010. Sen. McCain has also said in hearings that once this cap is enacted into law, he will immediately seek lower future emissions caps.

The new analysis by EIA was done at the request of Senator Mary Landrieu (D-La.). Sen. Landrieu recently said that she was thinking about changing her vote from no to yes if the measure comes to another floor vote.

The bill would raise prices in the gasoline, electric power and coal sectors. Gasoline prices would rise 9 percent by 2010 and 19 percent by 2025. The price of electricity (cents per Kwh) would rise from the reference case of 6.42 to 6.82 in 2010 and 9.09 in 2025.

The coal industry would be badly hit, with production dropping by 8 percent by 2010 and 59 percent by 2025. The price of a short ton of coal is expected to increase from $24.41 to $107.96 in 2025, an increase of 366 percent.

These price increases would continue to have a negative effect on the economy. That's why the cumulative GDP loss from 2004-2025 would be $776 billion, with a peak annual loss of $76 billion in 2025. When discounted to present value at 7 percent, the cost of the program to the economy to 2025 amounts to $290 billion -- over twice as much as the $135 billion cost of the Iraq war and occupation to date.

The EIA study isn't the only one to paint such a negative picture of Sen. McCain's feelgood measure. A new study by Charles River Associates (CRA) provides a fuller picture of the costs by incorporating adjustments to investment decisions and consumption choices made as a result of the effects of the bill. The study finds that residential electricity prices could rise by up to 43 percent by 2020, the average household would lose up to $2,255, and GNP would fall by almost 2 percent. As a result, the nation would lose 600,000 jobs.

CRA finds that the cost burden falls most heavily on the poor, despite the bill's setting up of a new welfare bureaucracy to mitigate its effects. The poorest 20 percent of households with an income of $14,600 or less will bear an energy cost increase burden 64 percent larger than the highest income households. The elderly will similarly be faced with a burden 15 percent larger than that for the under-65s.

The study estimates an annual loss to gross domestic product from $164 billion to $525 billion by 2025 -- much higher than the EIA estimate. The expectation of a further tightening of emissions caps in 2010 and later (as is implicit in the bill) produces job losses of 250,000 and 610,000 in 2010 and 2020 respectively. The reduction in economic activity would have a further effect on government revenue, reducing tax receipts from motor fuels income taxes by $7.5 billion to $19 billion in 2010.

Released by United for Jobs 2004 and the American Council for Capital Formation on June 8, the study also examines the effects on individual States. Louisiana would be much worse hit than the national average. Electricity prices could rise up to 52 percent, gas prices by up to 42 percent. Household income could drop by $2,818 and up to 20,000 jobs could be lost. Gross state product would drop by up to $11.5 billion in 2025, with state revenues falling by $211 million.

Supporters of the Kyoto protocol admit it would do very little to help reduce global temperatures (by as little as 0.15°C in 2100, even if you believe the alarmist case on temperature rises) and therefore say between 30 and 50 Kyotos are needed. The McCain-Lieberman plan would institute just a fraction of the Kyoto plan, and so would do nothing to reduce temperatures.

The invasion of Iraq has cost a bundle, and Americans are asking questions about the case for it. Consider how upset they'll be with Senator McCain when they realize he wants to charge America twice the cost of the war and put 600,000 Americans out of work but has no justification for his plan at all.


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