WASHINGTON (AP) - As a Senate panel prepares to vote next month on mandatory reductions of greenhouse-gas emissions, a debate is raging over whether the plan would damage the U.S. economy.
At issue before the Senate Environment and Public Works Committee is a bill that would set a nationwide cap on emissions, and require companies to hold an allowance for each ton of carbon dioxide released. As the number of permits issued each year declines, by 70 percent from 2012 to 2050, the allowance price would rise. Companies are projected to pass along those costs in the form of higher prices, creating an incentive for homes and businesses to use less energy.
Republicans and Democrats have been clashing over whether those higher prices - and the timing of their phasing in - would be tough for the U.S. economy to handle. Republicans have seized upon a forecast of job losses and at least $160 billion worth of reductions to economic growth in 2015 as the allowance price rises to above $50 a metric ton. Democrats have highlighted other forecasts that anticipate an allowance price below $20 a ton in 2015, giving the U.S. economy time to adapt.
The costs are “manageable and relatively minor considering what we will achieve there, which is to avoid the potentially disastrous consequences of climate change,” said Sen. Joseph Lieberman, a Connecticut Independent who is one of the sponsors of the bill, at a November hearing. “What are the costs of not doing anything?”
The debate in part reflects one of the chief characteristics of a cap-and-trade system: while it creates certainty about emissions levels, it produces uncertain costs. As businesses and environmentalists jockey for position in the political debate, economics forecasts are becoming a key tool in the arsenal.
The debate is likely to grow bigger. The Intergovernmental Panel on Climate Change, a United Nations panel of scientists, said last weekend in the strongest terms yet that the world will have to immediately reduce greenhouse-gas emissions in order to avoid such disastrous consequences as more frequent droughts in already parched regions and rising sea levels that would submerge islands and leave millions more people on coasts vulnerable to flooding each year.
Among the people concerned about the economic effects is Sen. George Voinovich, R-Ohio, whose state is home to coal-fired utilities and manufacturers.
Among his concerns: that coal-fired U.S. electric utilities would shift to natural gas, a cleaner-burning fuel, until technology to inject emissions from coal-fired plants into the ground becomes more widely available. The increased demand would lead to higher natural gas prices, according to economics forecasting firm CRA International, with increases of 15 percent to 20 percent by 2015. It also projects wholesale electricity price increases of between 36 percent to 65 percent by 2015.
“Sudden shifts in demand, such as those projected by 2015, would cause significant market turmoil,” said Anne Smith, a CRA economist, in Senate testimony. She foresees an allowance price of $32 to $55 a short ton by 2015, or more than $60 a metric ton. That is a critical point, as the Energy Information Administration has forecast that power plants wouldn't find it economical to switch fuels until the allowance price reaches $50 a metric ton.
Smith projects that, under the bill, between 1.2 million and 3.4 million fewer jobs would be created by 2015, even considering the jobs created from shifting to a more environmentally friendly economy.
Environmental groups privately complain that those projections are flawed. Among their questions is whether CRA takes into account provisions that would allow companies to offset allowance payments, such as by paying landfill owners to convert methane produced by the dumps to less-damaging carbon dioxide.
Those offsets, some environmentalists say, would limit increases in allowance prices before technology for so-called carbon capture and storage is widely deployed.
Environmental groups also cite the effects of efficiency gains - such as switching to more efficient hot-water heaters and fluorescent light bulbs - in holding down allowance prices.
“That decreases actual energy demand considerably,” Jonathan Banks, climate policy coordinator for environmental group Clean Air Task Force, said in an interview. “You have less of a demand for power because homes are using less energy in general, less electricity, less natural gas, because of the technology and energy efficiency programs in the bill.”
As a result, Clean Air Task Force assumes utilities won't begin using natural gas as a “bridge fuel” during the years before widespread deployment of carbon-capture technology. “There will be less use of natural gas than if we don't pass” the bill, Lieberman said.
Clean Air Task Force projects that the cap-and-trade program envisioned by the Lieberman-Warner bill would lower gross domestic product by 0.7 percent less by 2030. Duke University's Nicholas Institute, in an analysis of the bill before it was marked up, projected that gross domestic product would be 0.5 percent lower, or $75 billion, in 2015; 0.9 percent, or $245 billion, lower in 2030; and 1.5 percent, or $658 billion, lower in 2050.
CRA is forecasting much bigger effects, predicting that gross domestic product would be 1 percent to 1.6 percent lower by 2015, and 2 percent to 2.5 percent lower after that, should Congress put the Lieberman-Warner bill into law.
Last week, Lieberman asked Smith to share the methodology she used in coming up with the more pessimistic outlook. Sen. James Inhofe, R-Okla., and Voinovich asked the Energy Information Administration for a separate study, including a scenario that assumed power from new nuclear plants didn't accelerate.
In the meantime, Senate Environment and Public Works Committee Chairman Barbara Boxer, D-Calif., worries about delaying tactics. “I have done everything that I can do to give you the time, to give you the information,” she said at a November hearing. “We can take another year, and I don't think I'd pick up another vote from the people who do not really want to move on this.”