This blog is a sequel to my "Seven Questions to Ask of Any Economic Model of Climate Legislation" blog. Stay tuned as more studies come out...

1.   Top Line Question: How much larger (than 2008) does this model predict GDP will be in 2030 under an emissions cap (do not accept "how much less GDP is relative to no policy" answers)?

The study deceptively reports only differences in GDP growth, hiding the fact that GDP grows 72% under the cap by 2030 (more exactly, 72.06% under the cap, and 72.26% without the cap). Nowhere in the report will you find how much GDP actually grows.

2.   Opponents claim households will lose thousands of dollars per year if we put a cap on carbon, usually by incorrectly summing up the value of emissions permits and dividing it by the number of households. You should ask: Where does that money get spent in the economy? Does it simply vanish?

CRA does not even pretend to model the Waxman-Markey (WM) bill currently under consideration in Congress, or in fact, what it claims to be modeling, the Obama Administration's outline in his proposed budget. The "Obama Plan" establishes a cap and trade program, returning allowance value toward a "make work pay" income tax credit, clean energy investments ($15 billion), and the rest as an unspecified rebate to households. In fact, CRA models the $15 billion as a lump sum rebate to households, justifying this by saying private markets would give a higher return to society than if the government spent it on renewable energy. This implies that energy markets are efficient-i.e. renewables producers have equal access to transmission lines, they don't have to worry about competitors benefiting from their investments (the "first-mover" problem), subsidies to fossil fuels haven't put renewables at a competitive disadvantage, renewables are equally damaging to the environment as fossil fuels, etc.

 

3.   You should always ask how much consumers save in total from energy efficiency improvements between now and 2030.

Any credible analysis should project substantial energy efficiency savings. After all, total energy bills are what matter most to consumers, not commodity prices. A significant portion of energy efficiency will come from recently enacted policies and additional efficiency provisions in proposed legislation.

CRA does not model any energy efficiency provisions contained in the WM bill or the effects of the stimulus bill efficiency investments. Nor does it report any energy efficiency savings under the cap, and this can make a big difference.

In EPA's analysis, energy use levels stay at their 2015 levels all the way through 2050, while at the same time the economy grows three times its size. In the last 40 years, roughly 70% of our energy has come from energy efficiency gains, even without a climate cap. In the last 30 years, California held its per capita electricity consumption constant, while its economy grew faster than other states. (California's per capita electricity consumption is now 40% lower than it is in the rest of the country). The Union of Concerned Scientists provide another good example of how much households can save from energy efficiency measures.

 

4.   A good follow up to any of the first three questions: How is it that this study finds net job losses, when it predicts substantial increases in GDP, when economic analyses of past environmental regulations on average show an increase in jobs from environmental regulation and when energy efficiency and clean energy create 3 times as many jobs as fossil fuel energy?

The study reports job losses so large that they somehow swamp the effect of clean energy being 3 times more job intensive than fossil fuel energy, and any productivity gains we earn from improved energy efficiency. This is a critical reason this and other partisan studies do not assume increased energy efficiency under climate policy: increased productivity increases jobs.

 

5.   How do the model's allowance prices compare to EPA's most recent analysis of the Waxman-Markey bill?

Not surprisingly, CRA's allowance price projections are much higher than EPA's, probably because they don't model any provisions of the WM climate and energy bill.

 

2015 EPA WM core case: $13-$17	CRA: $25	1.7 times higher than EPA
2020 EPA WM core case: $17-$22	CRA: $60	3.0 times higher than EPA
2030 EPA WM core case: $28-$36	CRA: $106	3.3 times higher than EPA
(2005$)

           

And here's what they don't model (all of which lower allowance prices and are in the WM bill):

 

• other GHG gases besides CO2, some of which are much cheaper to reduce than CO2
• energy efficiency incentives and standards
• renewables or carbon capture and storage incentives
• offsets
• banking
• effects of energy policies in the stimulus bill

 

Consider also how different CRA's projections for costs are:

 

Annual cost to households 2030***	12.5 times higher than EPA
Increase in gasoline price 2030	2.5 times higher than EPA
Increase in electricity price 2030	2.4 times higher than EPA
Increase in natural gas price 2030	3.5 times higher than EPA

 ***EPA projects $98 to $140 per year per household through 2050.

And finally, CRA gets drastically higher numbers for an emissions cap that is less stringent than the targets analyzed by EPA.

 

6.   How much do renewables and advanced coal w/ CCS grow in the model after carbon reductions begin?

This information is not provided, nor do we know whether the cost of these technologies is assumed to decline over time as production increases (i.e. as economies of scale are reached). The reader is left to guess, but we probably know the answer.

We can also infer from their results that there is no increased domestic oil production from using captured CO2 to enhance oil recovery from domestic wells. This technique makes it possible to extract more oil, increase domestic oil production, decrease oil imports, and offset some of the cost of capturing CO2, thereby lowering allowance prices. Yet CRA actually projects a decline in domestic oil production.

 

7.   Did the study model the costs of inaction, such as property lost to sea level rise, more intense hurricanes, forest fires, water shortages, national security threats (from millions of people losing fresh water supplies as glaciers evaporate and droughts intensify), increasing world food prices due to water shortages, and lost ecosystems and species?

No.