Study of the Impact of Global Climate Policies on the People of Texas

Background

A study completed in August 1997 shows a severe economic impact on the people of Texas if the Clinton Administration commits to a global climate change treaty to restrict energy use in the United States.

The study, The Impact of Potential Greenhouse Gas Emission Limits on the People and Economy of Texas, was prepared by Glenn R. Schleede for the National Consumer Coalition under the auspices of Consumer Alert.*

The study focuses on one state, Texas, and identifies the potential costs that might be imposed on the people of Texas as a result of measures to force or encourage reductions in U.S. greenhouse gas emissions, particularly CO_2.

The U.S. is expected to make commitments at the UN Climate Change meeting in Kyoto, Japan, this December to significantly reduce greenhouse gas emissions. The treaty negotiations have attracted little public attention because most people seem to think that the commitments will only affect big business.

In fact, the U.S. negotiators’ commitment to set binding targets and timetables to restrict emissions will affect every individual, family, organization and community in the U.S.: either because less energy will be available or the prices of energy will rise dramatically.

The effects across the country will vary in the level of severity, with a greater impact on those states that are heavily dependent on the use of fossil fuels for energy production.

The Impact on People in Texas

Texas would be particularly hard hit by emission reductions because coal, oil, and natural gas (the fossil fuels) supply 96.2 percent of the total energy needs in Texas. Average per capita energy consumption in Texas in 1994 was 65.2 percent higher than the national average, largely because of the state’s energy-intensive industrial and agricultural activities.

In this study of global climate policies’ impact on Texans, various taxes on energy resources are used as “proxies” to estimate a range of costs that might be borne by Texas consumers resulting from proposed emission reduction approaches.

Using taxes as proxies recognizes that the Administration may propose or accept other measures, such as an international emissions trading scheme. However, such measures will have similar impacts as they would require major changes or reductions in U.S. energy use, force large increases in energy costs, and have other adverse impacts on the U.S. economy.

Among the adverse effects that various alternative measures and tax proxies could have on Texas people are the following:

• Texas would be forced to reduce its 85 percent dependence on coal and natural gas to generate electricity. Yet economical, alternative sources of energy are not available in Texas and are not likely to become available in the near future. Thus, the likely result would be a forcing up of electricity prices for all electricity customers, including residential customers.
  
• Emission reduction measures — considered separately — would cause Texans’ electric bills to increase annually by 10.3 percent to 48.4 percent.
  
• Tax increases of $.50 per gallon on motor fuels will cause an increase of 43.5 percent in motor fuel costs, adding $285 per year to each Texan’s tax payment flowing to Washington. A $1.00 per gallon tax would raise motor fuel costs 87 percent resulting in an outflow of $570 per person annually.
  
• The added annual cost and dollar outflow to Washington for a Texas family of four would average $1,140 for a $.50 per gallon motor fuel tax and $2,280 for a $1 per gallon tax.
  
• The annual cost per household would be $491 under a $100 per metric ton carbon tax (a tax on carbon associated with utilities= use of coal to generate electricity); that cost would double with a $200 per metric ton carbon tax.

• Texans would see an added annual outflow of their dollars to Washington ranging from $1.7 billion to $11 billion as a result of the tax alternatives considered in this study.

• Higher costs for electricity and motor fuels hit most individuals and households directly and take a larger portion of their after-tax income. Since per capita personal income and disposable income in Texas are lower than the national average, and, in particular, lower than states along the East and West coasts, people in Texas will be harder hit than residents in those regions.

• Older people and others living on fixed incomes are especially vulnerable to energy cost increases; in Texas, 10.2 percent of the population in 1994 was 65 or older.

• Higher costs for energy, through taxes or other mechanisms, mean that fewer dollars would be available for Texans’ other needs C food, clothing, shelter, medical needs, education, purchases of appliances and household goods, savings, and insurance.

* Glenn R. Schleede is president of Energy Market and Policy Analysis, Inc., a consulting practice on energy and related environmental and economic issues. Mr. Schleede previously was vice president of New England Electric System and president of New England Energy Incorporated. In Washington, Mr. Schleede served as executive associate director of the U.S. Office of Management and Budget, senior vice president of the National Coal Association and associate director (Energy and Science) of the White House Domestic Council. He has held career service positions with OMB and with the U.S. Atomic Energy Commission.

The National Consumer Coalition, organized by Consumer Alert, is an on-going educational coalition of 24 public policy groups that are committed to the consumer value of a market-economy in providing consumer choice, competition, and advances in technology that improve the health and safety of consumers. Consumer Alert is a non-profit, non-partisan consumer group, with individual members in all 50 states, which focuses on public policy issues and consumer education.