Don't read the headlines, read the story: Climate legislation is more than affordable

In testimony before the Senate Energy and Natural Resources Committee yesterday, director of the Congressional Budget Office (CBO), Douglas W. Elmendorf, testified that climate change legislation passed by the House last June (the American Clean Energy and Security Act (ACES), would cause GDP to decline by 1%–3.5% by 2050 and that, while employment would increase in clean energy sectors, some industries would experience job losses.

The newspaper headlines following the testimony unfortunately hit the panic button, expressing concern that climate change legislation could be costly to the economy. But if one examines the actual CBO study Elmendorf referred to in his testimony, and other government analyses (by the Environmental Protection Agency and the Department of Energy's Energy Information Administration), this is entirely the wrong conclusion to draw.

The real story from the CBO, EPA, and EIA analyses is that climate protection will require a very modest investment on the part of American households. Moreover, this investment cost pales in comparison to projected increases in GDP and household income:

• CBO projects an annual investment cost of $160 per household. EPA and EIA projections were even lower: $80-$111 and $83 per year, respectively. All these figures amount to less than a postage stamp a day.
• In comparison to these investment costs, EPA and EIA projections show median household incomes being $4,500-$5,500 higher per year on average, relative to 2009 levels. (CBO's analysis does not look at household income).

Results like these speak to the importance of putting Elmendorf's 1%–3.5% "reduction" in GDP in 2050 in context: the change implies a 2.30%–2.38% annual GDP growth rate instead of 2.4%. The difference amounts to delaying GDP from being 2.5 times its current size in 2050 by only a few months. Even studies by industry produce similar results, though they try to hide them in deceptive presentation.

Equally important is what the studies exclude. By reducing carbon emissions, we will get three big economic benefits:

• Reduced climate damages (and we can expect these to be quite large)
• Increased domestic oil production, using a process called "enhanced oil recovery," saving us billions of dollars in imported oil. For example, in 2030, EOR will recover more than $111 billion worth of oil, based upon NRDC analysis of ACES, and assuming EIA's oil price of $116/barrel in 2030.
• Millions of clean energy jobs (click here and here)

Elmendorf's testimony did raise one legitimate concern, however, which we should briefly address: industries that produce or use carbon intensive energy could suffer from a carbon cap. This would undoubtedly be true, if ACES (and likely any other climate legislation that could pass the House and Senate) did not provide transitional assistance to affected sectors. But, in fact, ACES provides generous transitional assistance. Electricity consumers are given 40% of allocated allowances, and energy intensive industries and oil refineries 17%. This transitional assistance eventually phases out, but not for many years, after which energy efficiency and innovations will bring compliance costs down. A recent analysis from Stanford University finds that these sectors might end up being substantially over compensated.

America needs to get off its addiction to the energy panic button. Far from being a drag on the economy, clean energy climate legislation will bring us many benefits at a very modest price tag. By moving forward to pass strong limits on global warming pollution, we will create millions of clean energy jobs, reduce threats to our national security, protect ourselves from oil price volatility and, most importantly, reduce our vulnerability to the most dangerous impacts of climate change.