Economy:

ACCF's Thorning warns that capping emissions may conflict with stimulus, job creation

Can President-elect Barack Obama successfully stimulate the economy, create jobs and reduce emissions? What are some of the pitfalls of pursuing a "green" stimulus? During today's OnPoint, Margo Thorning, senior vice president and chief economist at the American Council for Capital Formation, gives her take on why some of the incoming administration's aggressive climate and economic goals may conflict with each other. Thorning assesses Obama's energy and environment Cabinet picks and explains how she believes the chairmanship shift in the House Energy and Commerce Committee will affect the push for cap-and-trade legislation.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With us today is Dr. Margo Thorning, senior vice president and chief economist at the American Council for Capital Formation. Margo it's great to see you and have you back on the show.

Margo Thorning: Thank you.

Monica Trauzzi: Margo, the first thing that Congress will likely address when lawmakers come back to town in January will be a new economic stimulus package. And President-elect Obama is pushing for this stimulus to include clean energy and transportation infrastructure improvements. What are your thoughts on the discussion that we've been seeing thus far on the stimulus and this idea of making it a green stimulus?

Margo Thorning: I think it's really important that we focus on a stimulus package and the components, I think, will be up for discussion as a new administration takes their positions. But one of the things I think we need to focus on is that while the Obama administration is pushing hard to reduce greenhouse gas emissions, that goal may be in conflict with the goal of economic stimulus, because if we were to impose a cap and trade, which the Obama administration is advocating, Obama would like an 80 percent reduction in greenhouse gas emissions by 2050. If we were to impose that sort of regime we would certainly see lost jobs and a negative impact on economic growth because each 1 percent increase in GDP requires about a 0.3 percent increase in energy use. So, I think, as the economic stimulus package is debated, it would be wise to focus on things that will actually increase domestic supplies of energy, for example increasing access to onshore and offshore drilling for oil and gas, because the Department of Energy and the International Energy Agency suggest that we will be dependent on fossil fuels for energy for the next 20, 30 years. So we need to do positive things that will increase energy security here in the U.S.

Monica Trauzzi: But that doesn't quite fall in line with this clean energy platform that President-elect Obama has.

Margo Thorning: Well, clean energy is, of course, desirable, but we have to remember that wind power and solar power have to be backed up by conventional generation, because the wind doesn't blow all the time and the sun only shines 12 hours a day. So you must back up that sort of power with coal or nuclear or natural gas electric generating capacity. So that tends to raise the cost of wind and solar, vis-à-vis fossil fuels, particularly since fossil fuels have fallen sharply in the last several months in price. So we want to be careful not to substitute more expensive energy from renewable sources for cheaper energy, because that acts as a tax on energy producers and will slow economic growth.

Monica Trauzzi: Obama has a decidedly different approach to handling climate and energy than President Bush and you've been very vocal about your thoughts on green color jobs. Obama is talking about green color jobs in the upcoming stimulus and then more broadly throughout his administration he'd like to create millions of green color jobs. What do you think about his goals for green jobs creation and what do you see as any potential fallout from trying to reach that very high goal?

Margo Thorning: Well, I think, as I said, if we push too hard, too fast on the green job idea we will see a net job loss. For example, the ACCF and the National Association of Manufacturers analyzed the Lieberman-Warner climate bill, which is quite similar to the Obama plan. And we found that while we did see an increase in green jobs there was an overall net job loss because energy prices rose. So we have to be careful as we try to move toward cleaner, less emitting sources of energy that we don't raise the price of that energy, which will make it harder for U.S. consumers and U.S. business. Everyone would like to see more use of clean energy, but it's going to take time. We don't have the technologies. For example, we would like to be able to burn coal because we have a 200 or 300-year supply of coal in the U.S. and half of our electricity comes from coal-fired plants. But if we don't develop the technology to capture and store carbon it won't be possible to burn that coal without emitting more GHGs. So that's a challenge and we need to see more money spent on research and development for these alternative technologies that too could be part of a stimulus package.

Monica Trauzzi: The former head of the EPA Carol Browner has been picked as the energy czar and it's clear that there's going to be this integration of energy and environment policy in the next administration. When you look at the energy and enviro team what do you see and what do you foresee as the types of policies that might be coming out of the administration, maybe what problems could come about by trying to integrate these two different sectors?

Margo Thorning: Well, the challenge will be, and of course he's appointed a very strong team who's almost I would say entirely supportive of capping greenhouse gas emissions, reducing greenhouse gas emissions. That team will be working hard, I'm sure, to implement legislation either by allowing the Environmental Protection Agency to regulate greenhouse gas emissions or by imposing a cap and trade or perhaps even a tax on carbon emissions. But we need to be cautious about how this new team approaches it. For example, regulating GHGs under the Clean Air Act is likely to result in very costly bureaucratic approaches, because EPA would regulate standards, production standards for electricity generation, for transportation, for all types of retail establishments, commercial buildings. It would be like allowing a brain surgeon to use a power drill instead of the fine tools they would normally use. So regulating GHGs under the Clean Air Act would be extremely burdensome, extremely costly. So we need to try to move toward policies that are much more cost-effective and hopefully the team will recognize that.

Monica Trauzzi: But if Obama uses the Clean Air Act to regulate greenhouse gas emissions, might that push Congress to work a little faster to get some legislation passed? Might it maybe feel a little more incentive?

Margo Thorning: That's possible and some people seem to think that that's the motive for all the discussion about letting EPA regulate GHGs, because most people recognize what a bureaucratic nightmare that would be. And so the thought would be that puts more pressure on Congress to move in the other direction.

Monica Trauzzi: How do you see chairmanship shift in the House Energy and Commerce Committee affecting the policies that we're going to see coming out in the next coming year or so? I mean Dingell and Waxman have very different ideas about industry and approaches to mitigating climate change.

Margo Thorning: Exactly and I think Mr. Waxman is certainly going to be more aggressive in terms of stringent emission reductions. His approach will be far more stringent I think than the former Chairman Dingell would have wanted to see. And I think that's something that the rest of Congress is going to have to keep a careful eye on, because if we're not careful we will impose regulations on U.S. industry and households that make it harder to get out of our economic slump and less competitive globally. Developing countries, like China and India, where the growth in the emissions is strongest have said that economic growth is their number one priority and they will not be constrained by any legislation in Europe or the U.S. So policymakers here need to remember that if the U.S. were to meet an Obama target or a Lieberman-Warner target, the Environmental Protection Agency's own analysis has shown that by 2095 it would make no difference at all to global concentrations of CO2, but meanwhile we would have lost jobs and become less competitive. So we need to be careful and try to develop an international approach that is based on technology transfer and development of course of new technologies to allow us to capture and store carbon so that we can use fossil fuel until we can come up with a better substitute.

Monica Trauzzi: Final question here. With the new Democratic majority, do you think the votes are there to get a cap and trade through in the next two years?

Margo Thorning: I doubt it, because I saw this summer how the Lieberman-Warner bill was defeated in the Senate. Because the economy was beginning to soften in May and June, policymakers had seen some of the various economic studies, including that of ACCF and National Association of Manufacturers and they knew that substituting more expensive energy for cheaper energy would not be a plus. So I think with this current, rather dire economic outlook, policymakers are going to be looking for ways to cut costs and improve the economic situation. And I suspect that raising energy prices is not going to be on the top of their list.

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

Margo Thorning: Thank you.

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

[End of Audio]

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