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Can We Afford Climate Regulation?

Lawmakers are rushing a costly decision.

Fortnightly Magazine - December 2009

Freedom from fossil fuels, fluctuating energy costs, unclean air and climate change aren’t just dreams of the everyday environmentalist any longer. Much of the world and key industry leaders have acknowledged that human actions likely have contributed, in some measure, to the current state of our environment. And greenhouse-gas (GHG) emissions from electric generating plants represent a significant portion of the total. Clearly, all stakeholders, from electric generators to end-use consumers, must feel a responsibility to address this matter with thoughtful planning and effective solutions.

As we navigate the choppy waters of transition to a new model of operation in the electric industry that is driven, in part, by the need to better protect the world in which we live, an important question has been asked and debated: What will be the cost impact to end-use customers if lawmakers enact currently proposed federal legislation regarding carbon emissions? Unfortunately, the answer to that question is proving to be elusive with heated debate having raged for months. Cost estimates for climate legislation seem to be as variable as the models initially predicting the causes and effects of climate change itself.

Consumer Impacts

The U.S. House of Representatives on June 26, 2009, narrowly passed legislation known as H.R. 2454, The American Clean Energy and Security Act of 2009 (Waxman-Markey). Included in the legislation, among other things, is a cap-and-trade program whereby aggregate emissions from electric utilities, oil companies, large industrial sources and other heavy emitters must be reduced 17 percent below 2005 levels by 2020 and 83 percent by 2050. 1

Not surprisingly, the legislation is meeting with certain resistance in the Senate and around the nation, and it’s not yet possible to predict what the final version of the bill might look like. Senators Kerry and Boxer recently offered their own version of legislation, one that increases 2020 emissions reductions to 20 percent and emphasizes strengthening the economy, largely by creating jobs in the renewable energy sector. 2 It’s not altogether certain that legislation will be put to vote in 2009, as other issues—primarily health care reform—continue to consume much of the Senate’s time. However, at some point in the not-too-distant future, some form of legislation is expected to be implemented.

The total impact of proposed legislation is anticipated to affect consumers in many ways other than what will be reflected on their electric bills. This is in consideration of the expected cost increases for all other consumer goods and services as a result of carbon-reduction requirements.

A number of public policy voices state that climate legislation, such as Waxman-Markey, could be very bad for the U.S. economy with marginal actual environmental benefits. Some suggest the bill effectively would amount to the biggest tax in American history. Ben Lieberman of the Heritage Foundation believes the House-approved version, for example, will reduce cumulative U.S. gross domestic product (GDP) by $9.4 trillion between 2012 and 2035. 3 And to add salt to that

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