The Economic Impact of The Economic Impact of the Waxman Markey Bill (H.R. 2454)the Waxman Markey Bill (H.R. 2454)

By: Dr. Margo Thorning, Ph.D. By: Dr. Margo Thorning, Ph.D. Senior Vice President andSenior Vice President and

Chief EconomistChief EconomistAmerican Council for Capital FormationAmerican Council for Capital Formation

Washington, D.C. www.accf.orgTel: 202-293-5811 Mthorning@accf.org

Prepared for:The New Mexico Prosperity Project

Albuquerque, New MexicoSeptember 10, 2009

Prepared for:The New Mexico Prosperity Project

Albuquerque, New MexicoSeptember 10, 2009

Contributors to Global Mortality in 2000Contributors to Global Mortality in 2000

Source: John P. Holdren, “Science and Technology for Sustainable Well-Being, “ Science, May 2009.

0 50 100 150 200 250

Global climate change

Urban air pollution

Alcohol

Indoor smoke from solid fuels

War and revolution

Tobacco

Unsafe water

Unsafe sex

High blood pressure,cholesterol, overweight

Childhood and maternalmalnutrition

millions of years of life lost

Macroeconomic Impact of Waxman Markey Bill:Macroeconomic Impact of Waxman Markey Bill:Total Energy Sector CO2 EmissionsTotal Energy Sector CO2 Emissions

3000

3500

4000

4500

5000

5500

6000

6500

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

MM

tCO

2e

ACCF-Ref aeo2009Ref_Sti WM Cap (after adi.) WM Cap (before adj.)

Macroeconomic Impact of Waxman Markey Bill:Macroeconomic Impact of Waxman Markey Bill:Per Capita Energy Sector CO2 EmissionsPer Capita Energy Sector CO2 Emissions

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2

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2016 2018 2020 2022 2024 2026 2028 2030

met

ric to

n C

O2

equi

vale

nt GAP= 43%

Baseline Emissions

Waxman Markey Target

Assumptions Used in Modeling:Assumptions Used in Modeling:Technology Build Constraints (2030 Build Limits) Technology Build Constraints (2030 Build Limits)

High Cost ScenarioHigh Cost Scenario Low Cost ScenarioLow Cost Scenario

Nuclear 10 GW 25 GW

IGCC w Sequestration 15 GW 30 GW

Biomass Max 3 GW/Year Max 5 GW/Year

Wind Max 5 GW/Year Max 10 GW/Year

NGCC w Sequestration 15 GW 30 GW

Assumptions Used in Modeling:Assumptions Used in Modeling:Other Specifications Other Specifications

High Cost ScenarioHigh Cost Scenario Low Cost ScenarioLow Cost Scenario

Offsets

(annual)

1,000 MMT (split 95% Domestic, 5% International)

1,000 MMT (split 95% Domestic, 5% International)

Oil Price Profile AEO2009 AEO2009

Natural Gas Prices Not Constrained Not Constrained

Cellulosic EthanolWith HR.6 –

Not Constrained

With HR.6 –

Not Constrained

Banking 5,000 MMT 5,000 MMT

HR.6 Yes Yes

Allowance Prices (annual growth)

Constrained to 10% Constrained to 10%

Strategic Reserve Not modeled Not modeled

Macroeconomic Impact of Waxman Markey Bill:Macroeconomic Impact of Waxman Markey Bill:Carbon Allowance Price (2007$/Ton CO2)Carbon Allowance Price (2007$/Ton CO2)

High Cost: $159/Ton CO2

Low Cost: $123/Ton CO2

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40

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180

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Ca

rbo

n A

llow

an

ce P

rice

(2

00

7$

/To

n C

O2

)

Low Cost High Cost

Low Cost: $48/Ton CO2

High Cost: $61/Ton CO2

Impact of Waxman Markey Bill on the United StatesImpact of Waxman Markey Bill on the United StatesCompared to Baseline ForecastCompared to Baseline Forecast

Low Cost CaseLow Cost Case High Cost CaseHigh Cost Case

2020 2025 2030 2020 2025 2030

Loss in GDPLoss in GDP -0.2%-0.2% -0.5%-0.5% -1.8%-1.8% -0.4%-0.4% -0.8%-0.8% -2.4%-2.4%

Loss in Jobs Loss in Jobs (millions)(millions)

0.010.01 -0.33-0.33 -1.79-1.79 -0.08-0.08 -0.52-0.52 -2.44-2.44

Loss in Loss in Household Household Income Income (2007$)(2007$)

-$118-$118 -$339-$339 -$730-$730 -$250-$250 -$564-$564 -$1,248-$1,248

Impact of Waxman Markey Bill on the United States: Change Impact of Waxman Markey Bill on the United States: Change in Energy Prices Compared to Baseline Forecastin Energy Prices Compared to Baseline Forecast

Low Cost CaseLow Cost Case High Cost CaseHigh Cost Case

2020 2025 2030 2020 2025 2030

Rise in Gasoline Rise in Gasoline PricesPrices 8.4%8.4% 12.1%12.1% 20%20% 11.1%11.1% 16.1%16.1% 26.1%26.1%

Rise in Residential Rise in Residential Electricity PricesElectricity Prices 5%5% 4.9%4.9% 31.4%31.4% 7.9%7.9% 11.5%11.5% 50%50%

Rise in Industrial Rise in Industrial Electricity PricesElectricity Prices 12.5%12.5% 18.4%18.4% 48.9%48.9% 21.5%21.5% 32%32% 76%76%

Rise in Industrial Rise in Industrial Natural Gas PricesNatural Gas Prices 33.3%33.3% 61%61% 87.1%87.1% 51.1%51.1% 86.3%86.3% 113.5%113.5%

Impact of Waxman Markey Bill on the United States: Change in Impact of Waxman Markey Bill on the United States: Change in Industrial Value of Shipments and Employment in ManufacturingIndustrial Value of Shipments and Employment in Manufacturing

Low Cost CaseLow Cost Case High Cost CaseHigh Cost Case

2020 2025 2030 2020 2025 2030

% Loss in % Loss in Industrial Value of Industrial Value of ShipmentsShipments

-1.8%-1.8% -3.1%-3.1% -5.3%-5.3% -2.2%-2.2% -3.7%-3.7% -6.5%-6.5%

Loss in Loss in Manufacturing Manufacturing EmploymentEmployment

210,000210,000 380,000380,000 580,000580,000 280,000280,000 490,000490,000 740,000740,000

% Loss in % Loss in Manufacturing Manufacturing EmploymentEmployment

-1.8%-1.8% -3.3%-3.3% -5.8%-5.8% -2.3%-2.3% -4.2%-4.2% -7.3%-7.3%

Macroeconomic Impact of Waxman Markey Bill:Macroeconomic Impact of Waxman Markey Bill:Changes in New Mexico Economy Compared to Baseline ForecastChanges in New Mexico Economy Compared to Baseline Forecast

Low Cost CaseLow Cost Case High Cost CaseHigh Cost Case

2020 2030 2020 2030

Loss in GSP Loss in GSP (million 2007$)(million 2007$)

-$332-$332 -$3,397-$3,397 -$554-$554 -$4,635-$4,635

Loss in JobsLoss in Jobs 6060 -9,330-9,330 -400-400 -12,710-12,710

Loss in Loss in Household Household Income (2007$)Income (2007$)

-$70-$70 -$409-$409 -$166-$166 -$755-$755

Macroeconomic Impact of Waxman Markey Bill:Macroeconomic Impact of Waxman Markey Bill:Change in Energy Prices in New MexicoChange in Energy Prices in New Mexico

Compared to Baseline ForecastCompared to Baseline Forecast

Low Cost CaseLow Cost Case High Cost CaseHigh Cost Case

2025 2030 2025 2030

Rise in Gasoline Rise in Gasoline PricesPrices 12%12% 21%21% 16%16% 27%27%

Rise in Residential Rise in Residential Electricity PricesElectricity Prices 12%12% 28%28% 30%30% 61%61%

Rise in Residential Rise in Residential Natural Gas PricesNatural Gas Prices 5%5% 61%61% 11%11% 78%78%

World Carbon Dioxide EmissionsWorld Carbon Dioxide Emissions

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1990 2005 2020 2035 2050 2065 2080 2095

Foss

il a

nd Indust

rial

CO 2 Em

issi

ons,

Gt CO

2/yr

Africa

Middle East

Latin America

Southeast Asia

India

China

Korea

FSU

Eastern Europe

J apan

Australia_NZ

Western Europe

Canada

USA

Non-Annex 1 Emissions Equal with Annex 1 Emissions

Annex 1

Non-A

nnex 1

Source: Data derived from Global Energy Technology Strategy, Addressing Climate Change: Phase 2 Findings from an International Public-Private Sponsored Research Program, Battelle Memorial Institute, 2007.

Source: Data derived from Global Energy Technology Strategy, Addressing Climate Change: Phase 2 Findings from an International Public-Private Sponsored Research Program, Battelle Memorial Institute, 2007.

Global CO2 Concentrations:Global CO2 Concentrations:Carbon emissions are projected to rise over Carbon emissions are projected to rise over

the next several decadesthe next several decades

Waxman Markey: Comparison of the ACCF/NAM and Waxman Markey: Comparison of the ACCF/NAM and U.S. DOE Energy Information Administration U.S. DOE Energy Information Administration

20202020 20302030

ACCF/NAM*

EIA**ACCF/NAM

EIA

Loss in GDPLoss in GDP 0.4%0.4% 0.7%0.7% 2.4%2.4% 2.3%2.3%

Carbon Allowance Carbon Allowance Price (2007$/MtCO2e)Price (2007$/MtCO2e) $61$61 $93.3$93.3 $159$159 $190.5$190.5

* ACCF High Cost Case

** EIA No International, Limited Alternatives Case.

* ACCF High Cost Case

** EIA No International, Limited Alternatives Case.

Use cost / benefit analysis before adopting policies If U.S. puts a price on carbon emissions, a carbon tax is preferable

to cap and trade Reduce cost of U.S. energy investment through tax code

improvement and incentives for non profits Remove barriers to developing world’s access to more energy and

cleaner technology by promoting economic freedom and market reforms

Increase R&D for new technologies to reduce energy intensity, capture and store carbon, and develop new energy sources

Promote nuclear power for electricity Promote truly global solutions and consider expanding the Asia

Pacific Partnership on Development with its focus on economic growth and technology transfer to other major emitters

Practical Strategies for Reducing Practical Strategies for Reducing Global Greenhouse Gas GrowthGlobal Greenhouse Gas Growth