Economist warns US Congress on carbon cap costs

01 November 2007 22:54  [Source: ICIS news]

WASHINGTON (ICIS news)--Legislation imposing cap and trade emissions reductions on industry would raise costs for American households, create job losses and cut gross domestic product (GDP) but without reducing global emissions, an economist told Congress on Thursday.


Anne Smith, an economist and vice president at consulting firm CRA International, told the House Budget Committee that various cap and trade emissions bills now pending before Congress “vary in their specific timing and stringency, but all of them would impose significant costs on the US economy, even in the near term”.


Earlier on Thursday a Senate subcommittee gave the first US congressional approval to a cap and trade emissions reduction bill that would require US manufacturing, refining, chemical and other manufacturers and electric utilities to reduce their emissions of greenhouse gases (GHG) to 1990 levels by 2020.


Smith, testifying in a Budget Committee hearing on likely economic costs of a national emissions cap and trade programme, said that proposals now before Congress would impose net losses in the average US household’s real spending of some $1,500 (€1,035) each year through 2020.


“Net reductions in jobs would be 2m to 4m by 2020,” she said.


Reductions in US GDP would be in the range of $300bn-$500bn, or 1.5% to 2.5%, by 2020, she said.


“There is no question that achieving significant reductions in greenhouse gas emissions will be very costly,” she said.


“Energy prices will increase.  The costs of most goods and services will increase because they can only be produced by using energy,” she said.


“Some companies will be forced out of business, with attending consumer costs of making job transitions.  Energy cost impacts will be regressive and affect the poor disproportionately,” she said.


In addition, Smith said that the federal government would have to spend heavily on energy research and development (R&D) even as it tries “to grapple with likely declines in its traditional tax revenues due to the costs, reduced profits and reduced household incomes that the policy imposes on its tax base”.


She cautioned that US manufacturing sectors that compete globally - such as chemicals production - and could not pass through their emission reduction costs to foreign customers would be forced into reduce or shutter production capacity.


“These lost US manufacturing activities would be replaced by foreign manufacturing.  Global emissions will not fall but the US economy will still pay the price,” she said.


“Any GHG cap we impose domestically, and its attending domestic reductions, may be undermined by offsetting emissions increases in nations that do not have comparable caps,” Smith added.


“Large sums of money could be spent with no actual global environmental benefits, and US economic output and jobs ‘leak’ to other countries as well,” she said.


($1 = €0.69)

By: Joe Kamalick
+1 713 525 2653

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