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CBO Gets It Wrong on Climate Legislation
The Congressional Budget Office has come out with an evaluation of climate change legislation that pegs the cost at just $175 per household, per year. This is being trumpeted by legislation supporters as great news.
I've got news for you.
The CBO is wrong, potentially seriously wrong.
And, bill supporters are wrong, potentially seriously wrong.
In fact, the CBO excluded so many factors from its analysis that it is almost hard to take it seriously. And, almost without exception, the excluded factors bring benefits to America and Americans.
In other words, an honest and full analysis of this bill would not leave it at a cost... but as a benefit.
ACES won't cost US. This energy and climate legislation will benefit the US (and all of us).
A quick background re perspective
Well, I am (at best) lukewarm on how the Waxman-Markey American Clean Energy and Security (ACES) Act has evolved. It violates basic principles for climate legislation, unreasonably rewards (and enables) polluters, isn't aggressive enough on clean energy, and isn't strong enough against what is required (and to seize opportunities before us), ... Okay ... with that in mind.
Scoring costs but not all benefits ...
The Congressional Budget Office has come out with an evaluation that, as the Washington Post reported,
Climate-change legislation would cost the average household $175 a year by 2020, according to the Congressional Budget Office, far below the figure commonly used by GOP critics of the House bill.
The CBO said yesterday that the poorest 20 percent of American households would actually receive a $40 benefit in 2020 from the legislation, which would establish a cap-and-trade system to limit greenhouse gas emissions, while the richest 20 percent of households would see a net cost of $245 a year.
Supporters of action, of the American Clean Energy and Security Act, are trumpeting this CBO report, highlighting that it proves that it will only cost "a postage stamp a day".
"Americans know that building a clean energy economy has real value, and this CBO analysis proves it," said Rep. Markey. "Low-income American families will see a $40 benefit from using more wind and solar energy and less foreign oil. And for the cost of about a postage stamp a day, all American families will see a return on their investment as our nation breaks our dependence on foreign oil, cuts dangerous carbon pollution and creates millions of new clean energy jobs that can't be shipped overseas."
These advocates are doing a disfavor to the American public. And to the cause of serious action to reduce climate change impacts. In fact, the CBO report is almost certainly overstating the actual costs because it, quite explicitly, is understating the benefits of action.
Very simply, if anything, the CBO scoring is overly negative since it doesn't consider systems-of-systems implications.
- Job creation and, therefore, lowered governmental services demand: not in the calculation. (Trading imported oil for jobs building up an electrified rail network, for example ...)
- Economic implications of climate change -- and the avoided costs due to reduced pollution: not included.
- Health care benefits (to federal budget and otherwise) due to reduced fossil fuel pollution: not included.
- Increased productivity due to better health and better working conditions: not included.
- The analysis didn't even include the bill's strong energy efficiency provisions, which are direct cost savers. [Note: EPA has analyzed the bill and has lower cost figures than CBO mainly, it seems, because they did include the efficiency elements.]
From the House Energy and Commerce Committee:
CBO specifically notes that this figure "does not include the economic benefits and other benefits of the reduction in GHG [greenhouse gas] emissions and the associated slowing of climate change." In particular, CBO did not analyze the energy efficiency improvements and resulting savings in energy costs that will result from the ACES Act's investment of over $60 billion in the next ten years in energy efficiency and required improvements in energy efficiency. One outside group, the American Council for an Energy Efficient Economy (ACEEE), has estimated that the benefits of the energy efficiency provisions in ACES, which generally were not included in the CBO estimate, will save consumers $22 billion in 2020 alone, with cumulative savings of $3,900 per household by 2030.
The $175 figure is, if anything, pessimistic.
In fact, CBO probably has the sign wrong -- it shouldn't be a negative (in terms of cost) but positive (in terms of returned value for investment).
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Here's a quick math check: From March 2007-May 2008, gas prices rose 60%, resulting in a 4% reduction in consumption.
If Americans drove 12,000 miles a year in 2007, and got 25 mpg on average, that implies 480 gallons purchased. $2.40/gallon -> $1,152 per individual. 2.5 individuals per household -> $2,880.
That means in 2008, Americans would only drive 11,520 miles a year, buying 460 gallons. $3.84/gallon -> $1,766.40 per individual, or $4,416 per household.
This simple analysis only accounts for personal transportation. It doesn't begin to cover electricity use at home, or the cost of producing/transporting the goods we consume every day. If it costs more to produce those goods and bring them to local retailers, you can bet those costs will be buried in the higher prices of those goods.
Furthermore, the above scenario only results in a 4% reduction in consumption! To achieve even 20% reductions, you can compound the costs even further.
Lastly, you talk about the unmeasured benefits, but there are unmeasured costs as well. Those 480 miles that won't get driven might mean a family won't attend a friend's wedding, or go on vacation. That's fewer dollars going to tourist communities, and less happy people.
The CBO numbers don't pass a simple smell test, but not for the reasons you describe.
The rise in gasoline prices was perfectly predictable. Europe and Japan make great strides to convert their fleets to efficient and environmentally sound vehicles. If the US was really interested in becoming energy independent, it would follow their lead.
My household drove 15,000 miles last year. My Prius consumed about 320 gallons of gasoline. My total cost was probably on the order of $1200, less than half of your number.
If your energy bill is high, chances are that you are not using energy well. As it is, energy is still very cheap in the US. That's why people waste so much of it.
Well, you spend less on energy than the average American then. If anything, that proves that you will be affected less personally by hikes in energy prices. You already own a Prius. A spike in gas prices will affect your budget less than your neighbor's, who's still driving the mid-size car he bought 10 years ago.
My point was that energy demand in this country is pretty damn inelastic with respect to price. In other words, only monstrous price increases will be sufficient to change behavior - not the "postage stamp a day" trumpeted by the CBO. If a 60% increase is only sufficient to reduce consumption by 4%, what kind of increase will be needed to reduce consumption by 20%? Or 80%??
See A. Siegel's Profile
All these words ... and so little meaning or substance.
It seems to be that you are asserting that the only element here is that price drives lower demand. You are leaving out the substantial investments (both financial and in terms of moving standards forward) in energy efficiency. Take a look at ACEEE work, for example, to get a feel for the opportunities for energy efficiency at costs far lower than the cost of buying additional power.
The Cap & Trade should drive marginal decisions on the wholesale market from polluting to clean energy.
For example ...
I thought price was the theme of your essay - that switching to your prefered form of power generation won't be terribly costly to the consumer. My argument is that by definition, energy prices will HAVE to skyrocket for consumers to respond by changing their behavior.
Energy efficiency gains (using fewer kilowatt hours to perform the same amount of work) are independent of the power generation source. That's not a benefit unique to the origin source.
Cap and trade simply diverts resources from producing energy in the most cost-effective way to the less productive endeavor of producing energy the "green" way. I'd rather spend R&D on finding ways to make green energy cheaper - not taxing conventional energy to the point that costly green energy is the cheaper alternative.
Just remember, folks, Social Security was sold as something that would cost everyone a pittance: 1/2 percent of wages from the employer, 1/2 percent from the employee. Take a quick look at your pay stub and see what it's grown to: over 15% total. Once you give the government a route to levying taxes, it's a whole lot easier for them to slowly increase it by increments, all for good reasons of course. They're selling you a bill of goods to develop a new income stream, which they will then use to bribe you for your vote.
Why not do something that would actually work? Mass conversion of cars, trucks and buses to CNG would accomplish both your objectives, FreddieVee: We have enormous domestic supplies of natural gas, so we'd import much less foreign oil. We'd create jobs. The money we kept here could be used to develop more efficient alternative energy forms. Why, instead, are we going through this Waxman-Markey crap? Could it be that Congress can't wait to get those hundreds of billions of dollars of new taxes?
See A. Siegel's Profile
1. Re Social Security: While I don't buy the analogy, what you are doing is a clear example of how opponents of action are speaking: speak costs and not benefits. While Social Security is 15% of wages (beneath, what, $106k?), it is a serious insurance policy against disability, a form of life insurance to support dependents if one dies, and a base retirement. One shouldn't be speaking costs without speaking benefits.
2. You are selling the Pickens' bill of goods. His/Your CNG conversion is not a cost-effective path to end oil imports nor an answer to our environmental challenges.
"One shouldn't be speaking costs without speaking benefits"
One shouldn't speak of benefits that have not yet been delivered and, because of the Ponzi business model of operation, Social Security will likely NEVER deliver as promised, without speaking of the real costs and risks of this program. If private insurers and annuities conducted their business in the same manner as Congress has administered Social Security, they would all be in jail.
Serious insurance companies keep reserves to cover their liabilities. Social Security has NO reserves, just government promisory notes.
Where is all that natural gas coming from? It can not be found in deposits, so you have to let us know what your magic sources are?
The cap and trade legislation will do nothing to alter climate change. There will be NO measureable improvements as a result of this legislation. There will however be a cost to us all. Watch your electricity bills increase. No taxes for the middle class the President states, is this not a tax? Watch the cost of everything you purchase increase, again, not a tax?
How does this reduce our demand on foreign oil? Where are the numbers of how much it will be reduced? It's a scam, a tax generating scam.
Cap & Trade forces companies to pay for the total costs of what they produce.
As an example, let's say that three companies make paint. One company (P-1) uses an expensive process that uses non-polluting ingredients. Another company (P-2) uses ingredients that generate pollution, but uses filtering and disposal techniques which leaves no pollution, and the third company (P-3) uses ingredients that generate pollution, uses no filtering and disposes the pollution in the local streams.
P-3 will thrive because of lower apparent costs.
P-1 & P-2 will go out of business because they can not compete with P-3's prices at the paint store. Plus the manufacturers of the polluting ingredients will use TV ads to claim that their ingredients make this world a better place and their lobbyists will convince Republican lawmakers that any law requiring filtration and non-polluting disposal techniques is a tax on the middle-class and painters.
If, on the other hand, P-3 was required to pay the cost of cleaning up the stream, and the downstream damage caused by the dumping of it's pollution, it would find it cheaper to adopt non-polluting methods of processing or to switch to different ingredients. Either way, the market would be fairer for all concerned. When the government is forced to do the cleanup, is that not a tax on the public? Why should the government, actually the tax payers, subsidize P-3?
That is the theory behind Cap & Trade.
FreddieVee
See A. Siegel's Profile
Nice comment.
We should emphasize that "we" are paying for those total costs, due to pollution, whether or not we buy P-3's paint. They are imposing costs on all of us through their polluting behavior. Cap & Trade (or a carbon tax or ...) seeks to move those costs, at least partially, toward those imposing them rather than simply those suffering them.
Excellent. Why isn't this perspective touted in Washington?
Oh, sorry. That was a stupid question.
The two most important benefits of going green are (1) saving the people of this planet from the disruptive influences of climate change and (2) removing the consumers from the whims of the oil cartel.
FreddieVee
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