Experts tell US Senate that climate bills will raise costs

14 October 2009 20:28  [Source: ICIS news]

WASHINGTON (ICIS news)--The exact economic impact of climate change legislation is difficult to predict, but costs are certain to rise for the US manufacturing industry, households and the economy in general, various experts said at a US Senate hearing on Wednesday.

In a hearing before the Senate Energy and Natural Resources Committee, the Congressional Budget Office (CBO) said that cap-and-trade emissions mandates pending in the US House and Senate “would lead to higher prices for energy from fossil fuels and for energy-intensive goods” and would lower US gross domestic production (GDP) to some uncertain degree.

The CBO - the analytical arm of Congress - also said that a cap-and-trade mandate would shift income among households and that “policymakers could counteract some but not all of those income shifts” by providing rebates to the hardest-hit consumers through fees paid by the industry for emissions permits or allowances.

In addition, the CBO noted that in the absence of a coordinated worldwide effort to halt global warming, “impacts in the United States over the next 100 years are most likely to be modestly negative”, although there is a risk they could be severe.

The cost of the US enacting its own policy to reduce greenhouse gases (GHG) also would depend on whether other countries impose similar policies, the CBO added, an undertaking that developing nations have rejected repeatedly.

In its cost analysis of HR-2454 - the American Clean Energy and Security (ACES) Act passed by the US House in June - the CBO said that US GDP would be reduced by as much as 3.5% by 2050 and jobs would be lost as the nation worked to shift from carbon-based energy to non-carbon or low-carbon resources such as wind, solar, biomass and nuclear power.

In its testimony, the Congressional Research Service (CRS) noted that “a considerable amount of low-carbon [power] generation will have to be built under HR-2454” to meet the bill’s emissions reductions targets.

The CRS - the research arm of Congress - emphasised that “technological development will be critical” in meeting the legislation’s emissions cuts without causing significant economic harm.

The Environmental Protection Agency (EPA) also testified that its analysis of factors affecting the costs of meeting HR-2454’s emissions targets “are inherently uncertain, such as ... the potential for technological advances” in carbon capture and sequestration (CCS).

“There is much uncertainty about the rate at which various technologies will penetrate,” the agency said.

An official representing the Energy Information Administration (EIA) - the statistical and analysis division of the Energy Department - said that the extent to which technical breakthroughs could mitigate increased energy costs is also uncertain.

“It is well known that some key technologies for reducing emissions face a variety of technical challenges,” he said, citing the uncertain potential for carbon capture and sequestration.

And, in some cases, he said, there are “additional questions regarding public acceptance of their widespread deployment arising from concerns unrelated to global climate change”, such as public opposition to the sitting of nuclear power plants or wind farms.

Senator Lisa Murkowski of Alaska, the ranking Republican on the committee, noted that “economic assessments of climate change bills vary greatly”.

“However, every analysis projects two thing in common: higher energy prices and lower economic growth,” she said.

The Senate will begin further hearings on climate change legislation later this month.

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Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

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