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Appendix A: Additional Refutations of the "Wreck the Economy" Myth
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Costing Out Cap and Trade
In April 2007, researchers at the Massachusetts Institute of Technology (MIT) completed a study of the impacts of seven cap-and-trade bills before Congress. The bills would place a declining cap on greenhouse gas emissions. The strictest of these policies, as modeled by the MIT team, results in about a 76 percent drop in CO2 by 2050 relative to “business as usual,” meaning no additional energy policies. Figure A1-1 shows the increase in income per person (not per family) over the next forty years, with and without the cap on emissions.
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Figure A1-1. A team of researchers at MIT predicted that the cap-and-trade policies before Congress in 2007 would have little impact on individual income.
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As you can see in the graph, even a strict greenhouse gas policy does not wreck the economy. Income per person (in 2005 dollars) would be $90,421 instead of $92,421 in 2050, but this is up from $32,622 in 2005. In other words, with a strict climate policy, we would end up, on average, only 2.77 times richer instead of 2.82 times richer in 2050. Compared with the sacrifices made by previous generations for our benefit, this is a picnic. Our economy is strong and growing fast, and the costs of a policy that would promote climate stability and energy security would be lost in the rising tide of wealth.
A November 2007 report from the Congressional Budget Office makes the same point: “Even substantial reductions in emissions are generally associated with relatively modest impacts on consumption—especially compared with the expected growth in consumption over the next few decades.” The only serious economic concern is that the burden of the policy will fall mainly on the poor. But in fact, as I will demonstrate, a fair and efficient policy would actually benefit the poor.
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The McKinsey Report
A report from McKinsey and Company takes a completely different approach, shunning the traditional economic models used by the DOE and the MIT researchers. McKinsey and Company, the world’s leading management consulting firm, issued a report on the cost of greenhouse gas abatement in early 2007. It examined dozens of approaches, including conservation measures, forestation and other land-use measures, carbon capture and storage, and alternative fuels. The principal focus was on stabilizing greenhouse gases at about the same level as the stringent cap-and-trade programs analyzed by MIT would. The McKinsey report produces a graph of dozens of measures aligned in order of cost. If people implemented all the cheapest abatement methods, the cost would be only 60 billion euros per year in 2030, or less than a tenth of 1 percent of the world’s GDP.
However, such an optimistic view seems to make the authors of the McKinsey report nervous. Instead of reporting a cost of only 60 billion euros, as shown in their graph, they ignore the net savings, round up, and report a cost of 500 billion euros. But the McKinsey authors still appear to be nervous and immediately add a caveat: “However, should more expensive approaches be required to reach the abatement goal, the cost could be as high as €1,100 billion euros, 1.4 percent of global GDP.” Having inflated their cost estimates by almost 20 times, they finally arrive at a cost close to the one the MIT group predicted, which excluded from the start any possibility of conservation measures that actually save money.
The bottom line of the McKinsey report is that even without any net savings from conservation measures and without counting cost savings from reduced OPEC oil prices, an aggressive policy would cost 1.4 percent of global GDP. When they included economic growth, world GDP would increase by only 46.6 percent instead of 48 percent by 2030. This is the cautious conclusion of a cautious consulting firm speaking to its large corporate clients.
Study after study predicts basically the same thing. In addition to the nine studies that Chapter __ and this Appendix have addressed, a meta-study published by Resources for the Future in late 2005 reviewed a different group of eleven Kyoto cost studies. These were part of a cross-study comparison project based at Stanford University. The eleven studies predict the cost of complying with the Kyoto Protocol and extending it to 2020. The cost estimates range from a seventh of a percent to 1 percent of U.S. GDP.
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http://zfacts.com/p/878.html | 01/18/12 07:27 GMT
Modified: Sat, 07 Feb 2009 00:33:15 GMT
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