07/24/2009 05:12 am ET | Updated May 25, 2011

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).