Carbon Dioxide Restrictions are Costly, Pointless, Symbolic Gestures

Published May 28, 2009

Substantial restrictions on carbon dioxide emissions, such as those proposed by President Barack Obama and contained in the Waxman-Markey bill in the U.S. House of Representatives, will force Americans to undergo severe and protracted economic hardship for little or no real-world benefit.

Fortunately (or not), you don’t have to take my word for it; President Obama said so himself last year in an interview with the San Francisco Chronicle. Said Obama, “I’m capping greenhouse gases. … That will cost money. They [utilities] will pass that money on to consumers under my plan of a cap-and-trade system. Electricity rates would necessarily skyrocket.”

If you enjoyed last summer’s exploding gasoline prices, you’re really going to love the rise in gasoline prices, electricity prices, and unemployment, as well as the reduction in annual household income, that carbon dioxide restrictions will impose on the economy.

Science Applications International Corporation (SAIC), which serves as a contractor to several federal government agencies, last year analyzed the economic consequences of a 70 percent cut in carbon dioxide emissions by the year 2050. SAIC used the U.S. Energy Information Administration’s National Energy Modeling System under two different scenarios. SAIC analyzed the economic consequences under a “low cost” scenario in which nuclear power, clean coal, and other relatively cost-effective but environmentally controversial means are employed to meet the 70 percent reduction, and a “high cost” scenario in which nuclear power plants, clean coal plants, etc., do not play a major role in carbon dioxide reductions. Under either scenario, the economic consequences to American consumers will be devastating.

According to the U.S. Energy Information Administration’s economic forecasting model, a 70 percent cut in carbon dioxide emissions will cause gasoline prices to rise 77 percent over baseline projections, will cause electricity prices to more than double over baseline projections, will kill more than 3 million jobs versus baseline projections, and will reduce average household income by more than $4,000 each and every year.

If these numbers make you shudder, here comes the really bad news: That was the “low cost” scenario.

Under the more politically realistic “high cost” scenario, a 70 percent cut in carbon dioxide emissions will cause gasoline prices to rise 145 percent (more than double) over baseline projections, will cause electricity prices to rise 129 percent (more than double) over baseline projections, will kill more than 4 million jobs versus baseline projections, and will reduce average household income by nearly $7,000 each and every year.

And just when you thought things couldn’t get any worse, consider this: Those numbers contemplate a 70 percent cut in emissions. President Obama is proposing an 80 percent cut in emissions, and Waxman-Markey proposes an 83 percent cut in emissions. The economic costs of either of these two proposals would be significantly more painful even than the costs of the 70 percent cut discussed above.

It is not just the U.S. Energy Information Administration’s model that forecasts such sharp economic pain. The Congressional Budget Office, for example, reports that even a mere 15 percent reduction in carbon dioxide emissions would cost $1,400 per year for a family with an annual household income of $50,000.

Common sense explains why these costs, as President Obama himself acknowledged, are so steep. Cutting carbon dioxide emissions necessarily means restricting the use of gasoline and coal electricity. However, coal and gasoline are currently so prevalent for a reason; they are substantially less expensive than alternative energy sources. When you force consumers and businesses to pay substantially more money for the same energy they purchase at far less expense today, the unavoidable result is reduced purchasing power and severe economic pain.

Just how much more expensive are “alternative” energy sources? Economics professor Robert Michaels of Cal-State Fullerton published a study last year documenting the levelized costs (production costs per kWh in a tax regime providing no investment preferences) of various sources of electricity. The costs are as follows:

  • Coal:
3.79 cents/kWh
  • Clean coal:
4.37 (+ 15 %)
  • Natural gas:
5.61 (+ 48 %)
  • Nuclear:
5.94 (+ 57 %)
  • Wind:
6.64 (+ 75 %)
  • Solar thermal:
18.82 (+ 570 %)
  • Solar photovoltaic:
37.39 (+ 887 %)

With the same folks who are pushing for dramatic carbon dioxide restrictions also in general opposition to clean coal, natural gas, and nuclear power, you can see why President Obama admits electricity costs will necessarily skyrocket if we restrict coal.

But what about all those green jobs that are being promised? Well, sure, forcing (or “encouraging”) people to purchase alternative energy means jobs will be created in the wind and solar industry. But even more jobs will be destroyed in the more efficient conventional energy sectors and across the economy as a whole. Consider the following analogy:

The federal government could hire people to pick up stones and throw them through people’s windows. Such a program would create an employment boom in the “glass-collar” window repair industry. At the same, however, consumers will have to divert money from other goods and services they currently purchase in order to pay a higher premium to keep their windows repaired. Glass-collar jobs have been created, but other jobs throughout the economy have been destroyed because people must withdraw money that used to purchase other goods and services to keep their windows repaired. Society as a whole is worse off, because money that was previously being spent on food, clothing, shelter, services, and durable goods is now being withdrawn to keep windows repaired.

And what is society getting in return for such tremendous economic punishment? Very little, actually.

Even if we assume for the sake of argument that carbon dioxide emissions are creating a significantly warmer world, U.S. emissions are not to blame for increasing atmospheric carbon dioxide concentrations. U.S. carbon dioxide emissions have been essentially flat since the start of the Bush administration, while European emissions have steadily increased and emissions from developing nations have increased dramatically.

Not only has the U.S. essentially capped its carbon dioxide emissions, but the growth in other nations’ emissions will completely overwhelm any future U.S. emissions reductions. China’s emissions, for example, have been increasing at approximately 10 percent per year. Even if the U.S. completely and immediately eliminated all of its carbon dioxide emissions, the growth in Chinese emissions alone would in less than a decade replace all the eliminated U.S. emissions.

Advocates of strict carbon dioxide restrictions often counter that we cannot expect China and other nations to cut their emissions if we don’t demonstrate leadership and cut our emissions first. This is a nice thought, but the leadership in China, India, Indonesia, and other rapidly developing nations have explicitly stated–emphatically and repeatedly–that they have no intention of reducing emissions regardless of whether the U.S. reduces its emissions.

The cold, hard, unavoidable truth is that severe restrictions on U.S. carbon dioxide emissions will decimate the U.S. economy and our standard of living while producing absolutely no significant real-world benefit. And that is true even if we believe the dubious assertions that carbon dioxide emissions are causing a climate crisis.

James M. Taylor ([email protected]) is senior fellow of environment policy at The Heartland Institute.