PDF _ R40809 - Climate Change: Costs and Benefits of the Cap-and-Trade Provisions of H.R. 2454
14-Sep-2009; Larry Parker and Brent Yacobucci; 100 p.

Abstract: This report examines seven studies that project the costs of H.R. 2454 to 2030 or beyond. It is difficult (and some would consider it unwise) to project costs up to the year 2030, much less beyond. The already tenuous assumption that current regulatory standards will remain constant becomes more unrealistic as time goes forward, and other unforeseen events (such as technological breakthroughs) loom as critical issues which cannot be modeled. Hence, long-term cost projections are at best speculative, and should be viewed with attentive skepticism. The finer and more detailed the estimate presented, the greater the skepticism should be. In the words of the late Dr. Lincoln Moses, the first Administrator of the Energy Information Administration: “There are no facts about the future.”

But if models cannot reliably predict the future, they can indicate the sensitivity of a program’s provisions to varying economic, technological, and behavioral assumptions that may assist policymakers in designing a greenhouse gas reduction strategy. The various cases examined here do provide some important insights on the costs and benefits of H.R. 2454 and its many provisions.

• If enacted, the ultimate cost of H.R. 2454 would be determined by the response of the economy to the technological challenges presented by the bill.

• The allocation of allowance value under H.R. 2454 will determine who ultimately bears the cost of the program.

• The cases generally indicate that the availability of offsets (particularly international offsets) is potentially the key factor in determining the cost of H.R. 2454.

• The interplay between nuclear power, renewables, natural gas, and coal-fired capacity with carbon capture and storage technology among the cases emphasizes the need for a low-carbon source of electric generating capacity in the mid- to long-term. A considerable amount of low-carbon generation will have to be built under H.R. 2454 in order to meet the emission reduction requirement.

• Attempts to estimate household effects (or other fine-grained analyses) are fraught with numerous difficulties that reflect more on the philosophies and assumptions of the cases reviewed than on any credible future effect.

Finally, H.R. 2454’s climate-related environmental benefit should be considered in a global context and the desire to engage the developing world in the reduction effort. When the United States and other developed countries ratified the 1992 United Nations Framework Convention on Climate Change (UNFCCC), they agreed both to reduce their own emissions to help stabilize atmospheric concentrations of greenhouse gases and to take the lead in reducing greenhouse gases. This global scope raises two issues for H.R. 2454: (1) whether the bill’s greenhouse gas reduction program and other provisions would be considered sufficiently credible by developing countries so that schemes for including them in future international agreements become more likely, and (2) whether the bill’s reductions meet U.S. commitments to stabilization of atmospheric greenhouse gas concentrations under the UNFCCC, and whether those reductions occur in a timely fashion so that global concentrations are stabilized at an acceptable level. [read report]

Topics: Climate Change, Economics & Trade

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