EIA finds cap-and-trade bill more costly than Iraq war

by William Yeatman on May 27, 2004

The watered-down version of the Climate Stewardship Act that Senators Joseph Lieberman (D-Conn.) and John McCain (R-Az.) offered on the Senate floor last fall would still have significant economic costs, according to a new analysis by the Energy Information Administration.  The estimated price tag of $776 billion (or $290 billion in discounted dollars) is timely, since Sen. McCain recently announced that he would try to get another vote this summer on his bill to cap greenhouse gas emissions.

EIA’s estimate of the total costs of S. 139 as originally introduced was a principal factor in Lieberman and McCain’s decision to drop the second phase of emissions reductions when they offered their bill on the Senate floor.  Their Senate Amendment 2028 was defeated last October 30 by a 43 to 55 vote.

 The new analysis by EIA, which is the independent analytical arm of the Department of Energy, was done at the request of Senator Mary Landrieu (D-La.).  Landrieu recently said that she was thinking about changing her vote from no to yes if the measure comes to another floor vote.  

 The EIA analysis concluded that the price to emit a metric ton of carbon equivalent would rise from $55 in 2010 to $167 in 2025, compared with a growth from $79 to $221 over the same period under S.139 as originally introduced.

 The bill would have little effect on the natural gas sector, but would significantly affect the gasoline, electric power and coal sectors. Gasoline prices would rise 9 percent by 2010 and 19 percent by 2025. The price of electricity (cents per Kwh) would rise from the reference case of 6.42 to 6.82 in 2010 and 9.09 in 2025 (compared to 6.98 and 9.82
respectively under S.139).

 The coal industry would be badly hit under S. 139, reducing production by 14 percent in 2010 and 78 percent in 2025 compared to the baseline scenario.  The impact under SA 2028 is still severe, with production dropping by 8 percent by 2010 and 59 percent by 2025.  The price of a short ton of coal is expected to increase from $24.41 to $107.96 in
2025, an increase of 366 percent.

 These price increases would continue to have a negative effect on the economy.  The cumulative GDP loss from 2004-2025 would be $776 billion, with a peak annual loss of $76 billion in 2025.   When discounted to present value at 7 percent, the cost of the program to the economy to 2025 amounts to $290 billion.  Congress appropriated $135 billion to pay for the costs of the war in Iraq.

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