June 2004

Dr. Margo Thorning
American Council for Capital Formation

Dr. Margo Thorning is senior vice president and chief economist with the American Council for Capital Formation and director of research for its public policy think tank. Dr. Thorning also serves as the managing director of the International Council for Capital Formation. Thorning is an internationally recognized expert on tax, environmental, and competitiveness issues. She writes and lectures on tax and economic policy, is frequently quoted in publications such as the Financial Times, Suddeutsche Zeitung, New York Times, and Wall Street Journal, and has appeared internationally on public affairs news programs.

Dr. Thorning’s study on the economic impact of McCain/Lieberman on the U.S. and on several individual states is available at ACCF.org and UnitedForJobs2004.org.

Full Biography

The chat will begin at 2pm EDT on Wednesday, June 30.  You can send your questions now to chat@globalwarming.org .  Questions and answers will be posted as Dr. Thorning answers, beginning at 2pm.  Refresh your screen regularly to see questions and answers.

Moderator: Let me start by asking you, Dr. Thorning, to tell us a little bit about your study and summarize the results.

Dr. Thorning: The ACCF’s study (see www.accf.org) on the impact of the McCain/Lieberman legislation to reduce carbon emissions in the U.S. shows significant negative impacts on the U.S economy and on individual states.  As a result of higher prices for energy, job losses could  be as much as 610,000 by 2020 and low income and the elderly bear a larger burden than high income and younger individuals.

Moderator: Katherine in Maryland wants to know —
Why would policymakers support a bill that causes substantial job

Dr. Thorning: If policy makers have not seen credible estimates using appropriate economic models the lost GDP and reduced employment they might think that meeting the McCain-Lieberman carbon emission reduction targets is virtually costless.  

The new ACCF study demonstrates the high costs to the US and to individual states.
Another possibility is that Senators from states that do not use much fossil fuel for industry may hope to gain a competitive advantage if other states are forced to curb energy use and switch fuels.

Moderator: Arthur in Pennsylvania asks —
Munich Re, the world’s largest reinsurance company and second-largest insurance company, argues that, “Continued climate change will almost inevitably yield increasingly extreme natural events and large catastrophic losses.  This may make some vulnerable regions uninsurable.”  Even if most areas of the U.S. remain “insurable,” many risk management specialists have predicted that global warming
will cause significant increase in all types of insurance costs — disaster, auto, health.  Insurance prices are obviously just one area
in which global warming could impact the economy.  What studies have been conducted on climate change’s costs to businesses?  

Dr. Thorning: Tech Central Station has posted responses to the Munich Re study.  One criticism is that the study does adjust for the rising value and increased building along coastal areas so that the apparent increase in damages over time are biased upward.

Moderator: Lucas in Virginia asks —
With oil prices relatively high due to the international situation, would the McCain/Lieberman bill help us to be less reliant on foreign oil?

Dr. Thorning: Given the restrictions on oil and gas drilling in the U.S. both onshore and offshore, and slow progress on new pipelines, it is unlikely that M/L legislation would reduce imports significantly. We will still find foreign oil cheaper so will not likely reduce our imports. In fact, the US might increase oil imports since foreign producers won’t be saddled with the carbon taxes or permit fees  contained in McCain Lieberman approach.

Moderator: Judy from Virginia wonders —
Do you think policymakers know what economic costs would be incurred? 

Dr. Thorning: Many probably do not as there has not been much debate yet about what the different  credible models say about the economic burden of ML legislation. The new ACCF report helps close this gap.

Moderator: Bill in DC asks —
In your analysis, what data and assumptions did you make regarding energy efficiency potential in the end-use and power generation sectors, and what cost assumptions did you make for those resources?

Dr. Thorning: In the high cost case, backstop technology is assumed to decline over time from $300 per tonne to $100 per tonne by 2050; in the low cost case the cost stays at $300 per tonne permanently. There is more reliance on combined heat and power, more nuclear and other technological progress that reduces energy intensity.

Moderator: Another question about foreign oil, this from Brian in DC —
SA 2028 hopes to reduce our dependence on foreign oil.  Is this possible?  Is this desirable?

Dr. Thorning: S.2028 might well increase dependence on foreign oil since producing domestically will become even more costly due to the need for producers to pay for the right to emit carbon as they produce oil, gas and coal.

Moderator: Richard in West Virginia asks —
What inspired McCain and Lieberman to introduce this act?

Dr. Thorning: It is not clear.
Sen. McCain voted against a BTU energy tax in the early 1990’s and Arizona is a big user of coal to produce electricity. Arizona would be negatively affected by the bill. Sen. Lieberman’s state, Connecticut, would not be as hard hit as many other states because of its fuel mix so perhaps the incentive was to gain competitive advantage for Connecticut.

Moderator: Katrina wonders —
How do you reconcile your findings regarding McCain Lieberman with those of the Massachusetts Institute of Technology which states that there will be no negative employment effects and a reduction of natural gas demand and prices by 4 percent from reference case projections by 2020 due to incentives for greater energy efficiency?

Dr. Thorning: The MIT model ignored the impact of “foresight” on investors decisions about where to invest when they realize that carbon reduction targets will be tightening as time goes on. MIT also assumed households would not reduce the amount of labor supplied once they realize their real wages are falling.  Thus, MIT results understate the loss in GDP, investment and jobs compared to the model used in the ACCF analysis. See “Comparison of Models” at  www.accf.org for more details .

Moderator: Fran from Louisiana wants to know —
In which states will consumers be hit the hardest?

Dr. Thorning: Louisiana is one of the hardest hit, households lose as much as $2800 annually in 2020 under the tighter target case.

Moderator: Bill in DC has another question —
In other US cap and trade programs, such as the Acid Rain program, compliance costs on a per-ton basis fell rapidly below pre-program estimates.  In your analysis, have you run any scenarios that model such declines in the cost of emission reductions?

Dr. Thorning: The simulations assume an efficient trading system where the marginal cost of reducing emissions is the same across all sectors of the economy.

The analysis shows carbon taxes or the cost of permits rising as targets get harder and harder to achieve with growth in the economy and in population.

Moderator: Thomas from New York asks —
Would the bill hurt U.S. international competitiveness or would vulnerable sectors be excluded?

Dr. Thorning: About 85 percent of U.S. emissions are covered. Agriculture receives special treatment but would still face higher fuel cost.

U.S. competitiveness is affected due to higher prices for U.S. goods and services stemming from increased fuel and electricity costs.

Moderator: Thanks to everyone for their questions; that will conclude today’s live chat.  Check back regularly at www.globalwarming.org to find out about our next event.

This paper [PDF] places the past (1950-2000) and prospective (2010-2025) contribution of wind energy in the context of overall US energy consumption and US electricity generation.  The paper demonstrates that the contribution of wind has been and will be tiny — despite the massive subsidies and mandates being provided, unwisely, by federal and state governments.

 The paper notes that the wind industry, US Department of Energy (DOE) and DOE’s National Renewable Energy “Laboratory” (NREL) — using our tax dollars — has been highly successful in misleading the media, public, Congress and other federal and state regulators and legislators about the costs & benefits of wind energy.  The advocates have grossly overstated the benefits of wind energy, and greatly underestimated the environmental, ecological, economic, scenic and property value costs of wind energy.

 The false and misleading claims by the advocates have led to government policies, programs and regulations that are detrimental to the interests of consumers and taxpayers.

 The paper also admits that it is difficult, given the success of the advocates’ propaganda, to reverse bad federal and state wind energy policies, programs and regulations.  However, it notes that emerging citizen-led efforts around the world (e.g., US, UK, Germany, Denmark, Spain, Italy, Australia, and New Zealand) are beginning to be effective in bringing the TRUTH about wind energy to the attention of the media, public and government officials.

The new chairman of the board of Shell Oil, Ron Oxburgh, Oxburgh told the Guardian in an interview published on June 17 that Shell needs to take into accountthe greenhouse effect and global warming.   He is really very worried for the planet  ecause of the activities of companies such as his.

Oxburgh continued: No one can be comfortable at the prospect of continuing to pump out the amounts of carbon that we are at present.  He believes the only feasible solution is carbon sequestration and fears that, If we dont have sequestration I see very little hope for the world.

Oxburgh is as concerned about climate change as David King, the governments chief science advisor, who said climate change was a bigger threat than terrorism.  You cant slip a piece of paper between David King and me on this position, said Oxburgh.  

Oxburghs appeasement, however, has not gone down well with environmental groups determined to suppress the use of fossil fuels.  Byrony Worthington, a climate campaigner with Friends of the Earth, believes Oxburghs statements are public relations spin and that, [Oxburgh has] done quite a clever job by making it clear hes concerned but at the same time not pledging to do anything about it.

The Guardians correspondent David Adam, however, argued that, judging by Oxburghs history of honesty and his major and at times universally unpopular reforms while rector of Imperial College London, this is not a PR move.  Adam suggested that Oxburghs comments might be more direct than the PR people further down [his] building might appreciate.  (Guardian, June 17).  Or Shells lawyers, we might add.  Oxburghs astonishing comments would seem to be an invitation to massive liability lawsuits.

European bureaucrats are bitter about U.S. policies on climate change and may voice this opinion at the Group of Eight (G8) meeting in the United Kingdom next year.  Hans Verolme, a Dutch national employed as senior environment advisor at the British Embassy in Washington said at a seminar held by the European Institute on June 21 to discuss the new European emissions trading scheme, Its quite obvious that my prime minister is disappointed at the state of play in the United States (we presume he means Tony Blair and not Jan Peter Balkenende) and the U.S. should watch [its] space at the G8 meeting.

Robert Donkers, counselor for environmental affairs at the European Commissions Washington, D.C. delegation, gave a strongly negative assessment of U. S. environmental policies at the European Institute event.  He supports working directly with some States on the European Unions new Emissions Trading Scheme (ETS).  He also said, We are not so inclined to think that technology will give us all the solutions.  Luckily, we are converging with some States in the U.S.  Donkers concluded by advising that it was high time to end the short term cowboy economy (in the U. S.) and to find common ground again with the EU. 

In contrast, Andrei Marcu, president and chief executive officer of the International Emission Trading Association, cautioned European officials from relying too heavily on emissions trading to achieve reductions, stating that technology has to provide at the end of the day the solution and that trading alone is not a solution. (Greenwire, June 22).

Bertrand Collomb, the chairman of French cement maker Lafarge and also the new chairman of the World Business Council on Sustainable Development, also expressed concerns about the success of the ETS and about the EUs use of the precautionary principle.

The head of the Chicago Climate Exchange, Richard Sandor, proclaimed that his exchange for trading emissions allowances was already a success and that the EU only needed to follow the example he had created.  Former U. S. Ambassador Richard Benedick, now with Battelle Pacific Northwest National Laboratories, replied that Sandors claims had the faint whiff of the snake oil salesman.

The George C. Marshall Institute has published a pamphlet entitled, Climate Models: A Primer, by William OKeefe and Jeff Kueter, the Institutes President and Executive Director respectively.  It may be found on the web at http://www.marshall.org/pdf/materials/226.pdf .

A recent study in the April edition of Quaternary Science Reviews found that Indian Ocean monsoon patterns do not follow the variations predicted by global climate models.  In fact, the Indian Ocean monsoon rainfall patterns elicited the exact opposite variations predicted by the models.

Traditionally, climate models predict that a rise in the Earths temperature coincides with a significant increase in the rainfall patterns in the Indian Ocean area.  However, the study found that Indian Ocean monsoon rainfall has not only declined dramatically during the recent global temperature increase, but also declined during past periods of warming. 

By developing high-resolution stable isotope records from three contemporaneously-deposited stalagmites located in a shallow cave in Southern Oman, the research team, led by Dominik Fleitmann of the Institute of Geological Sciences at the University of Bern, examined the rainfall patterns in the region over the past 780 years.  They found that throughout the past eight centuries the relationship between monsoon rainfall and climate contradicted the results of global climate prediction models.

The researchers specifically pointed to a major temperature spike that began in the early 1400s as further evidence.  The abrupt warming (and following cooling period) created an initial decline in rainfall followed by a subsequent increase.  A review of this report can be found on www.co2science.org.

Two recent studies on the relationship between warming and mortality rates have reached contradictory conclusions.  According to a report by the Columbia University Earth Institute, rising temperatures will increase mortality rates.  However, a University of Virginia study points out that, Lives saved in conjunction with warm winters do tend to offset the additional deaths associated with warmer conditions in July and August. 

The Columbia University report by members of the New York Climate and Health Project examines linkages between climate change and problems such as ozone pollution and heat-related stresses and estimates that heat-related mortality in New York City could more than triple by the 2080s.  Researchers down-scaled global climate change models to make predictions for regional areas.  In contrast, the U. Va. study by Robert Davis and colleagues used temperature data in 28 major U.S. cities to find that temperature currently does not have a major influence on monthly mortality rates in US cities. 

The discrepancy between the two studies can likely be explained by the Columbia studys using global climate models to forecast regional impacts, a practice that is widely discredited in the scientific community.  For example, in an article about a conference on regional climate modeling in Lund, Sweden, Nature magazine, reported (Apr. 8) that, Participants admitted privately that the immediate benefits of regional climate modeling have been oversold in such exercises as the Clinton Administrations US regional climate assessment (the National Assessment on Climate Change).  The magazine also summarized participants beliefs that, Policy makers expectations of precise local regional projections need to be dampened down.  The use of real-world data rather than dubious extrapolations from models suggests that the U. Va. study is closer to the truth.  (Greenwire, June 22).

Two years after beginning a $20 million study of the effects of cirrus thunderhead clouds on the climate, NASA researchers have discovered that they play a significant part in determining how much sunlight is reflected back into space.

The studies directly contradict assumptions inherent in climate models, meaning that the role of cirrus formations in predicting climate will have to be reconsidered.

Weve got some amazing results that no one anticipated, says Anthony Del Genio, a climate modeler with NASA’s Goddard Institute for Space Studies at Columbia University in New York, told the Christian Science Monitor (June 24). It’s humbling to find out how often you’re wrong.

The Monitor summarized, One of the most fundamental questions surrounds the size of the ice crystals that make up tropical cirrus clouds. A team led by Timothy Garrett at the University of Utah found that the ice crystals in anvil cirrus over south Florida are smaller and reflect light more effectively than most models assume. The results suggest that when the clouds are thick as they first form over the top of a thunderhead, they reflect substantially more light back into space than models currently show.

The researchers also found, however, that the ice crystals carried nitric acid, which acted as antifreeze, so therefore allowing more water present as vapor.  Water vapor is the principal greenhouse gas.  In one case, the ice crystals were formed around dust from a plume that blew across the North Atlantic.  Again, this effect had not been accounted for in climate models.

Last month the Japanese government reported that greenhouse gas emissions for fiscal 2002 were 7.3 percent higher than the 1990 level. The Environment Minister Yuriko Koike said the Japanese government will now have to come up with very drastic measures in order to meet Japans Kyoto protocol target of cutting emissions to 6 percent below 1990 levels by 2008-12.

Government figures indicate that household and office emissions have increased.  This may have resulted from expanded home ownership and a burgeoning service sector.  Even while the energy efficiency of air-conditioners and automobiles has increased dramatically, Chiho Mito of the Energy Conservation Center, Japan, said, The energy saved by new technologies is offset by the increase in the number of [them].

Carbon dioxide emissions from the industrial sector have declined slightly.  Nevertheless, Hirata of Kiko Network stated this was largely the result of a stagnant economy, a trend that could easily reverse.  Hirata said the government may need to track emissions data for businesses and mandate reductions as they see necessary.  This would curtail economic production by restricting the amount of energy that companies expend (Japan Times, June 17).

Interviewed by the Associated Press on June 22, American Electric Powers (AEP) president, Michael Morris, was keen to stress that the world is in desperate need of greenhouse gas controls to curtail global warming.  Morris explained that We are more than prepared to go forward.  We are absolutely dedicated to improving the air performance at our power plants.

Furthermore, Morris believes that a plan much in line with the Kyoto Protocol is needed to set an international standard for emissions.  However, he added that the standard must be fair to American workers.  Morris also believes that the inclusion of developing countries like India and China must be mandatory in order to prevent them from gaining an advantage over the United States.  This echoes the Byrd-Hagel resolution adopted 95-0 by the Senate in 1997.

Morris concluded by explaining that AEP was on their side when speaking of environmentalists demanding stricter standards.  However, those environmentalists do not necessarily feel that AEP is on theirs.  Some have said that AEP still needs to do much more.

Coal-fired plants, which emit the most carbon dioxide of any power-generating option, account for 65 percent of AEPs generating capacity.  AEP has five million customers in the 11 States it serves from Michigan to Texas.  This interview comes at a time when AEP is involved in a lawsuit accusing the company of breaking the regulations of the Clean Air Act.  The suit charges AEP with not installing modern pollution controls at 11 of its plants.