Multiple studies find comprehensive climate and energy legislation equitable, affordable, and good for the economy
Posted June 16, 2010
In the last two weeks, a number of studies have been released assessing the economic impact of the American Power Act (APA), comprehensive climate and clean energy legislation released by Senators John Kerry and Joe Lieberman last month. The conclusions from the Environmental Protection Agency (EPA) the Joint Program on the Science and Policy of Global Change at the Massachusetts Institute of Technology (MIT), the Peterson Institute for International Economics, and Climate Works are unambiguously positive, and consistent with numerous past analyses of climate legislation.
I’ve written blogs on each of these studies; here I summarize various highlights from them on the following. (The studies each present different pieces of information and model different things, so there is not an entry from every model for each table or the distributional figures):
- Household investment costs vs. increases in income
- Distribution of costs by household income
- GDP growth
- Oil imports
- Household energy expenditures
- Model shortcomings—descriptions
2. Household investment costs vs. increases in income
3. Distribution of costs by household income
MIT has the data available over the full time horizon;
EPA presents data for only the year 2016 (over time the distribution would look similar)
Below investment costs versus increases in household income are presented by income brackets. To calculate them, I assume all income brackets have the same rate of growth in income. For MIT, I used the middle of the income brackets, rather than the average, which is how EPA presents its data.
4. GDP growth
5. Oil imports
Only the Peterson Institute report detail oil import savings:
6. Household energy expenditures
The studies report various types of energy expenditure statistics:
7. Model shortcomings—descriptions
Environmental benefits. Unfortunately, none of the studies account for the most important variable of all in this discussion, environmental benefits. Were these included, the discussion of “costs” of climate legislation would likely turn on its head, and instead be about benefits and savings from the American Power Act. Without action to reduce emissions, EPA finds that there is a 99% probability that global warming will exceed 2 degrees Celsius (3.6 degrees Fahrenheit), a threshold above which scientists project that the risk of catastrophe increases rapidly. With the APA anchoring a global effort to curb emissions consistent with commitments made by G8 countries last year, the risk of global warming exceeding 2 deg. C is reduced to 25% and the risk of temperatures rising more than 4 degrees becomes negligible. How important are the potential climate benefits? Measuring only a very small fraction of benefits from climate protection that can actually be monetized (e.g. protecting crops from temperature increases, and coastal properties from rising sea levels), the Institute for Policy Integrity at New York University's School of Law took the bold step of adding these benefits up and comparing them to the (much smaller) abatement cost of mitigation. Using the most conservative assumptions at every corner, their study finds that this limited subset of benefits could be as much as 9 times higher than the costs. Notably, these benefits exclude the potentially catastrophic outcomes scientists worry the most about (e.g. a complete melting of the West Antarctic ice shelf or Greenland’s ice sheets, either of which would by itself result in a 20 foot rise in sea level), and many environmental assets that are difficult if not impossible to monetize, such as the loss of species and ecosystems—some of which are already underway (click here, here, and here for examples).
Employment and national security benefits from enhanced oil recovery (EOR). New oil production from a process called enhanced oil recovery (EOR) would drive further job creation. EOR is a technology that has been used for decades to produce additional oil from fields by injecting CO2 (or steam) to free oil that is ordinarily left trapped in the underground formation. Currently, most of the CO2 used for EOR is extracted from natural sources which are limited in supply. With climate legislation, the supply of CO2 would increase dramatically from CO2 waste captured at power plants and industrial facilities. In addition to providing a place to sequester CO2, an abundance of existing and abandoned oil fields are available for CO2-EOR. They could yield an estimated 3 million of barrels of oil per day (mbd) by 2030, and displace 2.25 mbd in oil imports . By 2020, over 40,000 jobs could be created in the oil industry, rising to approximately 350,000 by 2030 (click here, here, here, and here to learn more about EOR). CO2-EOR would also reduce pressure to open up new areas for oil exploration.
Energy efficiency savings. Only the McKinsey & Co. model used by Climate Works adequately captures all of the possible energy efficiency and other low-cost abatement options. To get a sense of the vast potential for energy efficiency McKinsey & Company put out an excellent report in 2009 on energy efficiency opportunities in different sectors of the economy. It found that the industrial sector could cut primary energy consumption with a positive payback by 18 percent by 2020 (click here for another study on industrial efficiency). Climate legislation can help industry realize these improvements (click here and here). Allowances will go toward promoting more efficient production processes, R&D, low-cost loans, and other assistance to help manufacturers retool, retrain workers, and lower their energy bills. Increased efficiency will improve competitiveness, not only creating jobs in the process, but also keeping the ones we already have. In addition, McKinsey (2009) also estimates energy efficiency potential of almost 30% for both the residential and commercial sectors (see Exhibit A of the report).
Cost-reducing breakthrough innovations. None of the models can include cost-reducing breakthrough innovations, for the simple reason that they don’t yet exist. Yet how likely is it that over the course of forty years we won’t see any? Just looking at the evolution of computers and cell phones over only the last decade, our success in reaching the moon in a decade’s time, and the inexorable force of market innovation wherever profitable opportunities exist, it is difficult to imagine that rewarding clean energy production won’t unleash an unprecedented wave of clean energy innovation.
Projected EOR production is taken from “U.S. oil production from accelerated deployment of carbon capture and storage,” Advanced Resources International, March 2010. We conservatively assume that each incremental barrel of oil produced relative to EIA’s Annual Energy Outlook displaces 0.75 barrels of imports and 0.25 barrels of domestic oil from other sources.
 Jobs are calculated by applying the multiplier for oil and gas extraction from PERI (2009) to the amount of additional oil produced from CO2-EOR.