Thursday, September 17, 2009

CBO estimates of the economy-wide impacts of climate change legislation

The Congressional Budget Office (CBO) has released a comprehensive analysis of The Economic Effects of Legislation to Reduce Greenhouse-Gas Emissions. The analysis looks at the GDP impacts of climate change and of the pending Cap and Trade Bill (H.R. 2454). It also discusses some policy considerations.

The main points that the report makes are that

  • The expected harms to the U.S. economy over the next 40 years from unchecked climate change are likely to be very modest. Harms by 2100 are also likely to be relatively modest, perhaps in the range of 3 percent of GDP. However, harms become larger when non-economic outcomes are considered. Also, there are risks of catastrophic changes have to be considered.


  • The expected costs to the U.S. economy from H.R. 2454 are also likely to be modest, on the order of .25 to .75 percent of GDP by 2020 and 1 to 3.5 percent by 2050. While these amounts might appear to be, well, immodest, they have to be compared to the overall expected growth in GDP. For instance, the CBO projects that GDP will be 2 1/2 times larger in 2050 than it is now.


  • Considered just in terms of the measureable economic effects between now and 2050, climate change doesn't pass a cost-benefit test. However, the comparison becomes more favorable when non-economic harms and harms after 2050 are considered.
The report also points out that
  • "Climate change is an international problem." The harms extend beyond the U.S. so that policy changes here have benefits inside and outside the U.S. As importantly, however, the benefits of U.S. policy changes are constrained by the changes taken by other countries.

    This raises standard public goods problems. One the one hand, if other countries don't act, U.S. actions won't make an appreciable difference in climate change. Worse, a go-it-alone policy could exaccerbate the economic harms as carbon-intensive economic activity moves to less-regulated economies. On the other hand, if other countries do act, the U.S. could benefit without any changes on its own. Because of this, no country has incentives to act independently. A coordinated approach is needed.


  • A cap and trade policy is relatively efficient in terms of minimizing costs associated with reduction in greenhouse gases. However, a carbon tax policy could be more efficient still. Each type of policy involves certainties and uncertainties. The carbon tax leads to a predictable price change, but we can't be sure how much carbon output will respond. A cap and trade policy leads to more certainty about how much carbon output will change but less certainty about prices and costs. Given that climate change is a long-term problem, the costs of carbon output uncertainty are likely to be smaller than price uncertainty.
All in all, the report suggests several ways the H.R. 2454 can be improved. With the legislation still awaiting Senate action, there are also opportunities for improvement.

12 comments:

Bubba said...

Meanwhile, here's what the Obama administration expects the tax impact would be for the American family.

Excerpt:

" 'Heritage is saying publicly what the administration is saying to itself privately,' says Christopher Horner, a senior fellow at the Competitive Enterprise Institute who filed the FOIA request. 'It's nice to see they're not spinning each other behind closed doors.'

'They're not telling you the cost -- they're not telling you the benefit,' says Horner, who wrote the Politically Incorrect Guide to Global Warming. 'If they don't tell you the cost, and they don't tell you the benefit, what are they telling you? They're just talking about global salvation.'"

All to (supposedly)mitigate a "problem" that doesn't exist, except in the minds of those who stand to have their political/social/economic agenda benefit from such regulation.

Plus,I suspect that Boehner's cost numbers are closer to being right, but are probably still too low.

I think this legislation goes down the tubes.

Anonymous said...

Let's see, wasn't Elmendorff summoned to the Woodshed in July for some arm twisting on other pending legislation.

Color me skeptical.

Can you say
Battling Reports

"Today, industrial interests released their take on the costs of the Waxman-Markey climate bill. Not surprisingly, the National Assocation of Manufacturers found the bill would whack U.S. industry, kill about 2 million jobs, and knock about 2% of U.S. GDP by 2030."

Fred Gregory

Dave Ribar said...

Bob:

It's a dated analysis that describes a plan that is no longer under consideration. The CBO is scoring the actual cap and trade legislation.

Fred:

"Today?" You've linked to a news article from last month. The CBO and numerous other organizations predict that the impacts of the legislation will be much more modest.

To NAM's credit, it's finally released a full copy of its report, something that it was initially unwilling to do.

Anonymous said...

Dave,

To the administration's discredit they grudgingly released requested reports that cover internal estimates of the draft legislation which you now say is a finished bill. The essential core ideas of this scheme haven't changed all that much and resemble very much what you now say is a bill. Yes one that squeaked through with only a handful of votes. Sailing will be much rougher in the Senate and I suspect that it is headed directly at an iceberg.

documents sprinkled with embarrassments for cap-and-trade enthusiasts.

"In April, CEI requested Treasury records that involve 'cap-and-trade' schemes that deal with 'carbon,' 'carbon dioxide' or 'greenhouse gases.' After much delay, Treasury's Jennifer Beasley this week finally replied with portions of five measly documents, at least one written during the presidential transition period. That's a suspiciously slim record for one of the administration's signature proposals."

Not surprising how little notice was given to this apostasy.

Scientists pull an about face on global warming


"When a leading proponent for one point of view suddenly starts batting for the other side, it's usually newsworthy.

So why was a speech last week by Prof. Mojib Latif of Germany's Leibniz Institute not given more prominence?

Latif is one of the leading climate modellers in the world. He is the recipient of several international climate-study prizes and a lead author for the United Nations Intergovernmental Panel on Climate Change (IPCC). He has contributed significantly to the IPCC's last two five-year reports that have stated unequivocally that man-made greenhouse emissions are causing the planet to warm dangerously.

Yet last week in Geneva, at the UN's World Climate Conference--an annual gathering of the so-called 'scientific consensus' on man-made climate change --Latif conceded the Earth has not warmed for nearly a decade and that we are likely entering 'one or even two decades during which temperatures cool.' "

Fred Gregory

Dave Ribar said...

Fred:

The administration's analysis covered one aspect of a proposal that isn't being considered. The CBO analysis covers the legislation that is being considered. As we've discussed off-line, the administration gave a range of estimates. The CBO figures were consistent with (actually slightly below) the lower range.

If you'd like to explain how the analysis by the CBO is flawed, I'm all ears.

Dave Ribar said...

Fred:

When a leading proponent for one point of view suddenly starts batting for the other side, it's usually newsworthy.

This would be newsworthy if the proponent in question really were "batting for the other side." However, the statement distorts Prof. Latif's position, which is that ocean cycles are contributing to a temporary cooling trend.

From today's New York Times

Scientists say the last decade of climate stability — which follows a precipitous rise in average global temperatures in the 1990s — is a result of cyclical variations in ocean conditions and has no bearing on the long-term warming effects of greenhouse gases building up in the atmosphere.

But trying to communicate such scientific nuances to the public — and to policy makers — can be frustrating, they say.

Dr. Mojib Latif, a prize-winning climate and ocean scientist from the Leibniz Institute of Marine Sciences at the University of Kiel, wrote a paper last year positing that cyclical shifts in the oceans were aligning in a way that could keep the next decade or so relatively cool, even as the heat-trapping gases linked to global warming continue to increase.

But Dr. Latif, who gives around 200 talks to the public, business leaders and officials each year, said he had been met with confusion and even anger when he tried to describe this normal variation in climate while at the same time conveying the long-term threat of global warming.

Anonymous said...

How grateful we should be for the NY Times to tell us what Dr. Latif really meant.

I am anxiously awaiting their spin on Lomborg's article in Forbes,

Climate Change: A Perilous Path

"Many of us fear inaction on global warming. But we should equally fear continuing down the perilous path of promising costly action that will either fail to be enacted, or be more harmful than global warming itself. We have within our grasp alternative policy options that would truly leave the planet in a better state."


Fred Gregory

Dave Ribar said...

Fred:

Right, an op-ed from the Calgary Herald is a neutral source.

It's also ironic that you make one post that says that we don't understand climate change and that make another post that indicates that we understand understand climate engineering well enough that cheap solutions are at hand.

Bubba said...

A September 15th story from CBS is dated?

Tell me: What and where is the newer version that changes what the original says?

What's the "official revision" say now?

Dave Ribar said...

Bubba:

The antecedent of "it" should have been clearer. I was using "it" to refer to the administration's analysis, not the CBS blogger's story about the analysis.

You wrote "here's what the Obama administration expects the tax impact would be..." The present tense indicated that you viewed the administration's analysis as being current. However, the CBS post was based on two documents: one that was prepared last winter and another that was prepared during the transition. Both were prepared before the current cap and trade legislation was voted on.

The analyses omit key features of the legislation. In particular, the administration initially proposed auctioning off all of the permits under the plan. H.R. 2454 will distribute some of the permits directly to firms. Auctioning all permits contributed substantially to the administration's higher cost estimates.

As to the "newer version," I refer you back to the original post, which is about CBO's analysis of the current version of H.R. 2454.

As to the "official revision," the revised legislation is H.R. 2454 itself.

CBO pegs the economic impacts at the low end of the administration's initial range of estimates. It also puts the net per household cost at about $175.

In short, documents prepared last fall and winter about legislation that subsequently changed are dated and do not reflect what the administration or neutral analysts currently "expect" the impacts will be.

Bubba said...

CBO underestimate the real world costs by a HUGE amount.

They failed to account for employment and income losses from Cap 'n trade measures, which Heritage says will bring the costs to $4600 per household by 2035, with job losses running from about a million in the initial period to more than 2 million by 2035.

Again, all this to fix a non-problem?

I know the Dems don't want another fiasco on the heels of the current Obamacare embarrassment, and Cap 'n Trade is an even bigger loser for them.

As I said before, I think this all goes down the tubes.

It's only appropriate for the total wrongheaded-ness of the whole thing.

Anonymous said...

Well isn't this just special, sorta like the Brigadoon papers in reverse..

The Dog That Ate Global Warming

Fred Gregory