Charles River's Associates (CRA) released yet another impact assessment on the costs of climate change this week and despite every ill conceived parlor trick they could think of, they still managed to conclude that cap and trade policy will have a negligible impact on US GDP over the next two decades.  

How negligible? Well instead of GDP growing by 72.26% between now and 2030 without a cap, CRA calculates that US GDP will instead grow by 72.06%. A difference of 0.2% over nearly twenty years that is so small it undermines all of their "dire predictions" with respect to employment, household purchasing power, and energy costs.

Starting with CRA's job loss assumptions, CRA claims that labor productivity is the primary reason for "labor to tend to weaken" under a cap and trade system.  This analysis fails to account for the fact that low carbon jobs are three times as labor intensive as high carbon jobs and that complimentary standards can drive significant gains in our energy productivity, which ranks among the lowest in the developed world. From better lighting, to more efficient appliances, to new building shell efficiency, to better mileage automobiles, energy efficiency gains made through complimentary standards under a cap and trade program are expected to enhance worker productivity and keep employment growth steady relative to baseline projections.

Next on the list is tackling CRA's rather creative assumptions about household purchasing power. With GDP rising at a nearly identical pace through 2030 with and without a cap, it might seem strange that CRA would find household purchasing power falling by $1,020 to $2,127 during this time frame. Indeed it would seem strange if not for the fact that 1) CRA is using carbon prices that are three times higher than what the EPA is forecasting (more about this later), 2) CRA only talks about household purchasing power with respect to energy, and that 3) CRA made almost all the carbon dollars from the program disappear with respect to households.

Having moved on from card tricks to the shell game, CRA wants you to keep your eye on their exaggerated energy costs, and not notice that the bulk of the $5.6 trillion in revenues from the program have magically disappear into thin air.

Indeed, the only program dollars CRA uses to provide assistance to households is President Obama's $15 billion a year in clean tech funding. While you would think that Obama's $15bln a year in clean tech funding might be better modeled as a way to help us accelerate our transition to a low carbon economy and lower carbon prices, CRA has elected to avoid any heavy lifting in this analysis and decided not to bother as "the Obama Administration's FY 2010 Budget Proposal was very unclear about the uses to which these funds would be put".

CRA does indicate that they used President Obama's "Making Work Pay" income tax rebate program as a household purchasing benefit, but still concludes that "in real dollar terms the provision's impact is little over time". So this leaves us with $5 trillion plus dollars, sitting somewhere in a "US GDP account", where it can only be counted for GDP purposes and not as a benefit to households or indeed employment.   

This is not the first time CRA played this shell game with carbon dollars. Last summer, CRA's climate cost analysis for the Lieberman-Warner Climate Bill was literally laughed off the Internet for its dishonest approach to how the carbon revenues would (not be) spent. 

Lastly with respect to energy costs, CRA's carbon cost assumptions are inflated for three reasons, 1) CRA assumes carbon prices will somehow rise by 18% per year for the first decade while the cap on emissions only falls by 2% per year, 2) CRA assumes next to no improvements in energy efficiency due to better industry standards or investments in low carbon solutions under a climate bill, and 3) CRA fails to take into account of how provisions to keep carbon prices down, like a strategic reserve pool, would work to limit the rise in carbon prices over time.

In sum, CRA tries to come out with a climate cost tempest but never leaves their teacup. Their conclusion that US GDP costs of cap and trade are negligible at around 0.2% over nearly two decades undermines their dishonest conclusions with respect to employment, household spending, and energy costs. While CRA does admit that investment would increase over this period when compared to business as usual its other headline grabbing conclusions are less supported by actual modeling of what would take place under an actual climate bill.