Margo Thorning is senior vice president and chief economist of the American Council for Capital Formation.
As Congress considers far-reaching federal climate-change legislation, there has been far too little discussion on the economic costs such policies would impose at the state, local and household levels. Make no mistake: From a financial standpoint, the burdens for Minnesotans would be substantial.
Add to this that Minnesota is considering state-specific and regional-climate change proposals, and it is clear that it is time to have an honest discussion on the potential economic impact such policies would have on families, businesses and governments.
The primary federal legislation set for debate in Congress, the Climate Security Act of 2007 — sponsored by Sens. Joe Lieberman, an independent from Connecticut, and John Warner, a Republican from Virginia — would establish a cap on the emission of greenhouse gases resulting from economic activities. The federal cap seeks to stabilize the concentration of these gases, with the goal of reducing 2005 emission levels 63 percent by 2050.
Efforts at both the federal and state levels are undoubtedly motivated by sincere desires to pass on a cleaner environment to future generations. Yet, these efforts overlook critical economic realities that are likely to undermine an already weakened economy and reduce living standards for decades. The question for lawmakers is whether they believe the anticipated benefits can be achieved and at what economic costs.
The Lieberman-Warner legislation would involve dramatically curtailing the burning of fossil fuels, which are used in 86 percent of primary energy production nationally. Thus the effect of such caps would be to raise the price of energy, thereby discouraging its use. In that sense, the cap on emissions serves as a sizable tax on energy use.
Let’s consider the costs to the state economy should the federal bill alone become law. A recent American Council for Capital Formation and National Association of Manufacturers study conducted by the independent Science Applications International Corporation assessed the national and state economic impacts of Lieberman-Warner. Estimates for Minnesota include:Â
- Gross state product losses of up to $4 billion in 2020 and up to $12.6 billion per year in 2030.
- Employment losses of up to 33,735 jobs in 2020 and up to 74,569 jobs in 2030.
- Household income losses of up to $3,455 per year in 2020 and up to $8,201 per year in 2030.
- Electricity price increases of up to 39 percent by 2020 and up to 153 percent by 2030.
- Gasoline price increases (per gallon) of up to 67 percent by 2020 and up to 140 percent by 2030.
- Natural-gas price increases of up to 38 percent by 2020 and up to 153 percent by 2030.
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