The Cbo Gives A Big Boost To Climate Policy

by The New Republic | June 21, 2009

The Congressional Budget Office has been causing heartburn for health care reformers in recent weeks, as my colleague Jon Cohn has been documenting. But on climate policy, it's a different story. The CBO just put out a new assessment of the Waxman-Markey climate bill in the House, and the results should give supporters of the legislation plenty of reason to smile.

A few weeks ago, Republican Dave Camp asked the CBO to calculate the economic impacts of the bill's cap on carbon emissions. For some time, the GOP has been insisting that the cap would cost upward of $3,000 per family per year. And they may have been hoping the CBO would agree. But the report's now out, and the CBO estimates that the cap will actually cost Americans just $175 per household—or $70 per person—by 2020:

[T]he net annual economy-wide cost of the cap-and-trade program in 2020 would be $22 billion—or about $175 per household. That figure ... does not include the economic benefits and other benefits of the reduction in GHG emissions and the associated slowing of climate change…. Overall net costs would average 0.2 percent of households’ after-tax income.

I doubt this will stop the GOP from continuing to predict economic doom, but it's a credible counterargument. Kevin Drum pulls out a handy table from the report that breaks costs down by income group. Low-income families come out slightly ahead under the cap-and-trade program, while the cost to the wealthiest two quintiles amounts to $245-$340 per year—less than a dollar per day:

Now, a few caveats. First off, the CBO didn't tally up the benefits of all the energy-efficiency provisions in the House climate bill. According to the American Council for an Energy Efficient Economy, those measures—from stricter appliace standards to building retrofits—could save businesses and consumers $22 billion per year by 2020, or $170 per household. In other words, efficiency gains could well cancel out the costs of cap-and-trade. The CBO also didn't assess the upsides of reducing greenhouse gases—helping to avert drastic global warming, cleaner air, and so on.

Second, regional effects do matter. Under any cap on carbon-dioxide emissions, coal-heavy states like West Virginia will likely have to undergo steeper adjustments than, say, California. The CBO report doesn't examine these disparities very closely, though it does argue that "any aggregate change in unemployment would be small compared with the normal rate of job turnover in the economy."

Third, as I've mentioned before, government predictions about the cost of environmental regulations have almost always turned out to be overstated. That's partly because businesses tend to adapt to pollution restrictions by employing new technologies far faster than economic models project. That's no guarantee of the future, of course, but it does seem to be a consistent historical pattern.

On a final note, some groups like Greenpeace are opposing the Waxman-Markey bill because its short-term emissions targets aren't as aggressive as what scientists are saying is needed to prevent a climate catastrophe. That's a fair concern, but the CBO report lends credence to the idea that it's crucial to get an even halfway decent carbon cap up and running as soon as possible. After all, if there's reason to expect that cap-and-trade will cost very little, then it'll be politically much easier to tighten those targets later, after the cap's in place. A good analogy might be the Clean Air Act, which was fairly limited when enacted in 1963, but which was continually amended and strengthened over the years.

(Flickr photo credit: Mulia

--Bradford Plumer

Source URL: http://www.newrepublic.com//blog/the-vine/the-cbo-gives-big-boost-climate-policy