The Economic Hit from Waxman-Markey

Beacon Hill Institute has apparently shifted into overdrive this week. This is posted today:

Cutting CO2 emissions by 83% over four decades – as proposed in the Waxman-Markey Discussion draft – might appear to be an easy goal, but the results indicate otherwise. The first point to note is that such cutbacks, whether done by the U.S. alone or in concert with others, would all be more expensive than doing nothing at all.

If the United States were to cut emissions alone, with no cutbacks (relative to trend) by other countries, it would bear the full cost of abatement (PV = $3.85 trillion) while reaping only about $0.27 trillion in benefits. This represents a net cost, relative to doing nothing, of $3.42 trillion. It would cost the United States $154 billion by 2020 and $1.318 trillion by 2050.

By 2045, the tax on carbon would need to rise to $714 per metric ton of carbon (equivalent to $195 per metric ton of CO2) to induce consumers to make the necessary cutbacks; from Table 1 we see that this would add $1.73/gallon to the cost of gasoline (in 2005 dollars) and 6.7 to 14.9 cents to a kWh of electricity – essential doubling the retail price of electricity.

The benefits are modest because by 2050 the U.S. would account for less than a sixth of world emissions of CO2; reducing U.S. emissions by 83% (relative to the 2005 level) by then would cut global emissions by just 11%, which would have a modest effect on climate, moderating the increase in global temperature by 2100 from 3.30ºC (the baseline no-controls case) to 3.12º.

Beacon Hill has also done some state-by-state analysis, which can be reviewed at their Web site.