Climate:

Pew's Claussen discusses the costs of cap and trade

With a number of studies showing varying statistics on how much a federal cap-and-trade program will cost the average American, how can Congress accurately assess the true impact? During today's OnPoint, Eileen Claussen, president of the Pew Center on Global Climate Change, breaks down the numbers and discusses disparities among the studies. She explains why she does not believe there is an economic argument against cap and trade and gives her take on how inaccurate numbers and modeling may negatively affect Americans' perception of climate legislation.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Eileen Claussen, president of the Pew Center on Global Climate Change. Eileen, it's great to have you back on the show.

Eileen Claussen: My pleasure.

Monica Trauzzi: Eileen, we've been focusing recently on the cost of cap and trade and what the impacts of a cap could be on the average American family on a month-to-month basis and there have been many analyses done and they all sort of showed different numbers, varying from $300 to $3,000 a month for these families. First off, before we get into the specifics of the various studies, what are the biggest factors contributing to these number differences? I mean is it the modeling that's used when these analyses are done?

Eileen Claussen: I think there are two things that are really at play here. The first is what the assumptions are, what do you assume about economic growth? What do you assume about energy prices as you look into the future? The second thing is what are you actually modeling? What are the parameters of the bill or the policy that you're modeling? And there's a big difference here between some who actually model a bill and some who make up a bill and model that one.

Monica Trauzzi: So, the study that has caused most of the controversy here is this MIT study that was done two years ago. And Republicans have been citing this study and they basically took this figure of $366 billion from 2015 through 2050 of the cost and divided it and found that it would cost Americans $3,000 a year when a cap and trade is in place. One of the authors of that report has since come out and said that those figures were used incorrectly. It's actually $300, but the study continues to be used by Republicans. So how big of an impact do you think that the use of studies like that has on Americans and their perception of cap and trade?

Eileen Claussen: Well, I mean obviously it has a huge impact because people tend to look at the messenger and if they like the messenger they believe the message. And in this case there are no grounds at all for the $3,100 figure and it certainly is not the Waxman-Markey bill, which is the way it's being used. So, I think it is really destructive to have numbers there that are so out of it, I mean so wrong and then have people cite them as if they're the gospel.

Monica Trauzzi: Is emissions math as complicated as it seems?

Eileen Claussen: Well, no, I actually think…I mean the base models are all relatively similar. It's a question of what you put into them, what the inputs are and that really tells you what the outputs will be. So I don't actually think it's that hard to do a reasonable job of estimating what a particular piece of legislation would look like or a particular policy and then grinding through the numbers. Now, I should also say that I don't believe any of the numbers that come out of these models because we're not very good at predicting the future, but I think you can get some ideas for how to minimize costs by looking at the models. And I think you can get some idea of the ranges of cost, so you have some idea when you decide on something what you're actually deciding on.

Monica Trauzzi: So, what's Pew's take on how much this could actually cost the average American family?

Eileen Claussen: Well, I mean there are four studies that are being used to estimate the cost. One is the $3100 that you mentioned, no basis in reality. Another one suggests $4300 per family per year, it doesn't model the bill. It doesn't take into account anything in the Waxman-Markey legislation that would reduce the cost to the American family. It assumes basically no technology. So I wouldn't look at that one as something that's useful. Then there's a $1600 per family number that's being thrown around. It comes out of a CBO study and it was done in 2000 when energy prices were very different, when the prospects for economic growth were very different. And it certainly doesn't model the bill because it was from the year 2000. Only one of these sets of numbers actually tries to model the bill and it's one that was done by EPA. There they say that the range is $98 to $140 per family per year. And, again, I'm not saying these numbers are right, but the order of magnitude is probably about right when you think about the Waxman-Markey legislation. So, if you're going to pay attention to any of these numbers I think that one is the best.

Monica Trauzzi: So, the consensus across the board here though is that cap and trade will commit some cost to the average American. How does one, how does Congress decide then what is appropriate, $300, $3,000? How do you figure what the average American can afford to spend for additional energy costs every year?

Eileen Claussen: Well, the first thing I would say is that we actually have a long history in America of looking at not only the costs, but also the benefits, the cost of not acting, because otherwise you're sort of in a situation where you say, well, these are the costs of acting and this is in addition and it's terrible, no matter how big or how small those numbers are. But there is actually a cost to not acting and I think if you want an honest discussion about the cost you also have to look at the cost of not acting. Now, we don't have great numbers on the cost of not acting. I mean the State of California did some analyses looking at wildfires in the West and what that might cost or drought in the West and what that might cost, and the numbers are pretty high. I mean wildfires they estimate at $2 billion a year in total. So you can look at that and at least get an idea. Again, I don't believe any of these numbers, but at least get an idea. But I think you have to frame this the right way because it's not as if it's all cost and no benefit. So, that's one of the things that I think is really important.

Monica Trauzzi: But there are also some really strong concerns about passing legislation like this during our current economic crisis. I mean do those economic arguments hold ground when we have a situation like the one we have right now?

Eileen Claussen: I don't actually think so and let me tell you why. I mean there was a hearing not that long ago where a group of CEOs testified before the Waxman-Markey committee and they said, uniformly, and these included coal burning utilities and technology companies and energy intensive manufacturers, and they all said, you know, there's a cost to not acting here. There's a cost because we don't know what the future is going to look like and so we don't want to make investments, so we're holding money back from making investments in the economy because we'd like a clearer idea of what the future is going to look like. So that's another thing that I think we have to take into account. Again, it's not like it's all costs, even right now costs. I think you have to look at all of this and I believe there is a real cost to not acting, because what we really need is to get some money flowing into the system to stimulate jobs and the economy.

Monica Trauzzi: Final question here. Beyond the consumer impacts of cap and trade another issue that's causing some pushback is whether a cap and trade would put U.S. companies at a competitive disadvantage on the international level. Can we avoid or mitigate that disadvantage and is that something that you see being addressed right now?

Eileen Claussen: This is another issue where there is certainly some truth, but it's not the issue that some would like to pretend that it is. There are energy intensive industries and if their costs go up considerably they could be put at a competitive disadvantage and we certainly believe that's true for these industries, which include chemicals and steel and aluminum and cement. So, what can you do before there is a global agreement where everybody has the same kinds of requirements? We think the best way to address this is through allocation, that you might want to help them ease the additional energy costs that they'll be feeling. And actually the Waxman bill does that. It does give energy intensive manufacturers some allocation. We think that's the best way until you can have something that is global that really does level the playing field.

Monica Trauzzi: OK, we'll end it right there. Thanks for coming on the show.

Eileen Claussen: My pleasure, again.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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