Climate change bill likely to cap economic activity, not warming

(AP/C Riedel)

The US House narrowly passed a landmark climate change bill late Friday, handing the Obama administration a major legislative victory.

Proponents hailed the win and noted that passage is the first step toward curbing so-called greenhouse gas emissions, while opponents see the 1,300-page cap and trade bill as a huge tax increase and an unwarranted intrusion by government into the private sector.

The American Clean Energy and Security Act is designed to limit or cap the quantity of certain greenhouse gases emitted from facilities that generate electricity as well as from other industrial activities over the 2012-2050 period.

According to the Congressional Budget Office, the EPA would establish two separate regulatory initiatives known as cap-and-trade programs—one covering emissions of most types of greenhouse gases and one covering hydrofluorocarbons.

And for the first time, regulatory bodies will be able to mandate reductions in greenhouse gases, cutting output by 3% in 2012 versus 2005 levels,      17% by 2020, and 83% by 2050.

In addition to the environmental benefits, Democrats argued that the bill will spark gains in clean energy and create jobs while costing just pennies a day for the average family. The Congressional Budget Office weighed in, saying the annual cost per household will run about $175 per year in 2020 – a mere postage stamp a day – and raise revenues of $845.6 billion through 2019.

But others expressed deep concerns that a much larger tax burden will emerge, stifling economic activity, raising the cost of energy, and doing little to improve the environment.

And they may be right. The Wall Street Journal said the CBO analysis contains “so many caveats as to render it useless.” CBO projections look at the day-to-day costs of operating a trading program, the Journal said, rather than the wider consequences energy restriction would have on the economy.

The CBO concedes this in a footnote, stating that “the resource cost does not indicate the potential decrease in GDP that could result from the cap." The highly-respected financial daily added that “behind the scenes (Democrats) acknowledged the energy price tsunami that is coming.” In fact, the Heritage Foundation sees that may approach $2,000 annually for a family of four by 2020.

Consequently, U.S. families, which are already suffering from damaged balance sheets, will be burdened with higher energy costs, while the economy will be forced to adjust to an onslaught of burdensome requirements.

What about China and developing economies?

CO2 emissions are a worldwide issue and the discharge of such gases are growing quickly in countries such as China and India, giving opponents added ammunition to argue that the cap and trade bill’s tremendous costs are likely to produce few if any benefits to the environment.

Having the US shoulder an unfair burden as the country attempts to pull out of the worst recession in 70 years, while China, India and other emerging economies ignore greenhouse gases, gives American manufacturers another reason to export jobs to developing nations.

Put it all together and it becomes clear why 44 Democrats resisted overtures from party leaders and political heavyweights and sided against the administration.

Fortunately, the razor-thin margin in the House probably dooms a similar climate change bill in the Senate.