Senate panel considers climate change bill's impacts

Days after one US Senate committee approved a climate change bill with a carbon cap-and-trade program, the chairman of another convened a hearing to examine the possible economic consequences.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Nov. 11 -- Days after one US Senate committee approved a climate change bill with a carbon cap-and-trade program, the chairman of another convened a hearing to examine the possible economic consequences.

Finance Committee Chairman Max Baucus opened his panel’s Nov. 10 hearing after casting the single vote against S. 1733 on Nov. 5 when Democrats on the Environment and Public Works Committee approved the measure sponsored by that committee’s chairman, Barbara Boxer (D-Calif.), and John F. Kerry (D-Mass.) following a 3-day markup that Republicans generally boycotted.

Baucus expressed commitment to passing climate legislation, saying that in addition to considering economic consequences, “We also need to consider the consequences of failing to act.”

Two witnesses warned that economic harm could be substantial, especially if other countries don’t take similar steps. Others emphasized jobs and revenue in a transition to a lower-carbon energy system.

Initial assessments
Among initial assessments by committee members, Charles E. Grassley (R-Iowa), the ranking minority member, said, “An honest cost assessment requires us to acknowledge that there would be no economic benefit for Americans from it, at least initially.”

Pat Roberts (R-Kan.) said that his state has supported renewable energy development for some time and that investments have been based on market forces.

Kansas ranks ninth in oil production and eighth in gas production among US states and has three small refineries that contribute jobs and money to nearby communities, he noted.

“Under the bill which some said was railroaded out of the Environment and Public Works Committee last week, officials in these communities have told me they would suffer significant job and economic losses,” Roberts said.

In comments submitted to the committee, the National Petrochemical and Refiners Association cited an Energy Policy Research Foundation Inc. study earlier this month that said even before US refiners face higher costs from carbon emissions they would face a higher cost structure and increased international competition, which would threaten to close 2.5 million b/d of the existing 17.5 million b/d of US refining capacity.

But Kerry said comprehensive climate change legislation would create jobs. He dismissed reports such as the one cited by NPRA saying, “Your studies aren’t credible because you haven’t considered the impacts of inaction.”

He said, “What business people like Lou Hay, chairman of Florida Power & Light, and Jim Rogers, chairman of Duke Energy, are telling me is that if we don’t do anything countries like China, which is tripling its wind energy investment, are going to leave us behind.”

He questioned a statement by Kenneth P. Green, a resident scholar at the American Enterprise Institute for Public Policy Research (AEI), that a cap-and-trade system would be an inappropriate greenhouse gas control tool that would cause economic damage, cost jobs, and provide little environmental benefit.

“Legislation now before Congress will create regional winners and losers,” Green said. “Cap-and-trade creates a poorly understood financial instrument, which will increase debt. As biofuels gain favor, more agricultural farmland will be converted to fuel from food production.”

Margo Thorning, senior vice-president and chief economist at the American Council for Capital Formation, said a reason economic assessments of cap-and-trade’s potential impacts reach such differing conclusions is that some use input-output models and others rely on macroeconomic assessments, which she said most government and think-tank analysts prefer because they can show impacts on capital markets and other economic components.

“Macroeconomic studies show significant costs,” she maintained. “As [the US Environmental Protection Agency] and others have admitted, the environmental benefits will be almost nil if the US goes it alone.”

Acid rain comparison
Baucus warned against predicting dire economic consequences from new cap-and-trade policies, pointing to the cap-and-trade system established by the Clean Air Act Amendments of 1990, which he helped write, to reduce sulfur dioxide emissions related to acid rain.

During debate on that bill, he said, several industry studies made dire predictions about potential economic effects and job losses. EPA studies even estimated $2.7-4 billion of annual costs and predicted that 13,000-16,000 coal-mining jobs would disappear as a result of the program. A decade later, he said, an EPA analysis estimated the cost at $1-2 billion/year and job losses at one-fourth the predictions.

“About 95% of the jobs lost were due to productivity gains in the industry,” Baucus said. “Very few were lost due to the acid rain program itself.”

AEI’s Green said the acid rain program was much smaller than a cap-and-trade operation for carbon dioxide would be.

“In acid rain, you had a smaller number of players with an easily measurable pollution source affecting a smaller segment of the economy. The final costs turned out to be lower because early problems led to changes in the system,” he said.

When Maria Cantwell (D-Wash.) asked whether derivative market loopholes should be closed before a carbon allowance system was established, the AEI analyst said they should. “We’re talking about a huge amount of the energy economy which would be put into these securities. If they are not sustainable, the government will burst the bubble, and it would be a very big bubble,” Green said.

Other witnesses said federal lawmakers should consider which forms of energy would work best in creating jobs during a transition to lower-carbon sources. Carol Berrigan, energy infrastructure director at the Nuclear Energy Institute, said construction of nuclear plants would create tens of thousands of jobs.

Abraham Breehey, legislative director at the International Brotherhood of Boilermakers, Iron Shipbuilders, Blacksmiths, Forgers, and Helpers, said coal with carbon capture and sequestration and nuclear expansion have higher job potential than natural gas.

Committee member Debbie Stabanow (D-Mich.) said, “I look at this whole discussion through the prism of jobs.”

Contact Nick Snow at nicks@pennwell.com.

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