Institute for Policy Integrity's Livermore discusses economics of Cantwell-Collins bill

As the Senate prepares for the release of the Kerry-Graham-Lieberman climate bill, how would alternative approaches affect the economy? During today's OnPoint, Michael Livermore, executive director of the Institute for Policy Integrity at New York University School of Law, discusses new research on the economic impacts of the Cantwell-Collins "CLEAR Act." Livermore explains why the "CLEAR Act" will reduce emissions in an economically viable way and also compares it to other policy options.


Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Michael Livermore, executive director of the Institute for Policy Integrity at New York University School of Law. Michael, thanks for coming back on the show.

Michael Livermore: My pleasure, thanks for having me.

Monica Trauzzi: Michael, you recently released an analysis of the Cantwell-Collins CLEAR Act, the top line finding being that the bill will reduce emissions in an economically viable way. How do you believe the CLEAR Act will impact jobs numbers?

Michael Livermore: Well, it's difficult to say, of course, on an aggregate level because the American economy is incredibly complex. It's incredibly dynamic and so making long-term predictions about things like how many jobs there are going to be or what the average wage is going to be is just very difficult. So what we do is we look at a couple of kind of sub parts of that question, looking at particular sectors and looking at questions that have to do with inflation, prices kind of around how these jobs will circulate around the economy basically. That's, at some level, the fundamental question. What we find is two major findings. One is that the act will really put a push on innovation and innovation is a very important aspect of long-term job creation, long-term worker productivity. So that's one finding. And then the second finding is that within certain key sectors of the economy, like housing, that have been particularly hard hit by the recent financial crisis, we know workers are seriously hurt in those areas and that the green economy kind of jobs that will come about as a consequence of the CLEAR Act will help pick up some of the slack within those particular sectors. So, basically, out of work construction workers in housing can get work making homes more energy-efficient or within the manufacturing sector producing solar panels, that kind of stuff. So those kinds of green jobs that are created help pick up the slack in exactly the kind of labor sectors of the economy that have been hardest hit by the recession.

Monica Trauzzi: One of the key concerns though about the CLEAR Act is that it only tackles upstream parties. Is that a concern at all when it comes to the economic impacts of a bill like that?

Michael Livermore: I don't think so. I find that concern to be overblown with the upstream versus downstream. It should basically work out the same. On the upstream side, basically what happens is that you limit the amount of carbon that comes into the economy basically and then that carbon circulates around, some of it gets turned into electricity, some of it gets turned into car miles driven. That's how that works. A downstream cap looks at the emissions themselves, so the plants have to have a certain amount of permits for their emissions. Now, for the most part, this shouldn't matter and, actually, we use an upstream cap and it's the only way that you could deal with auto emissions. Otherwise, everybody would have to somehow keep track of their tailpipe emissions per car and hold permits. That doesn't make any sense. No one thinks that makes any sense. And so what you have to do is you have to do it on the fuel side. And it's basically the same approach for power plants. Rather than having all of the power plants in the country individually hold these permits and these allowances for their emissions they have to hold more on the bringing the carbon into the economy side. So basically, really, the only results are you see, one, there's fewer parties and that's actually good for an administrative perspective, right? So instead of having like 40,000 folks or however many tens of thousands of folks that you would have to deal with to hold permits, you actually have a smaller number of people that actually makes it just easier to administer the program. But it's really kind of six dozen one-way -- well, no, it's half a dozen one-way, six of the other.

Monica Trauzzi: One of the key issues surrounding a cap and trade is the impact on energy prices and I'm curious to find out what you found the CLEAR Act would do for energy prices and how that would trickle down to the consumer.

Michael Livermore: Right and that is a key question that everybody is wondering about. So, with energy prices, any cap that deals effectively with emissions or with fossil fuels coming into the economy is going to have an effect on energy prices. At some level that's the idea, to put a price on emissions, put a price on carbon. And so the real question is what's that effect for people? So one question is just because prices go up that doesn't necessarily mean that people's bills go up, so if people are paying higher say per kilowatt hour prices, if they reduce their energy consumption through energy efficiency that doesn't mean that their bills are actually going to go up. So that's one important thing to keep in mind. The second thing to keep in mind is the Cantwell-Collins bill or the CLEAR Act has a dividend mechanism. So what they do is they auction off the permits and then they raise that revenue and then they dividend it or refund it back to the American people. So studies, economists have shown that what happens when you do that is most Americans, the vast majority of Americans will actually come out even or better off under a cap and dividend bill and it's only the folks that have the kind of highest energy consumption and those are people who are relatively wealthy that tracks quite commonly. And so it's really the wealthiest folks that are going to be somewhat worse off and, actually, they can deal with that, if they want to, by reducing their energy consumption.

Monica Trauzzi: So, everybody in town is waiting for the release of the Kerry-Graham-Lieberman bill, which seems to have the most steam behind it on the Senate side. Why do you think something like the Collins-Cantwell approach hasn't gotten more attention or more support if, as you're saying, it would be positive from an economic perspective?

Michael Livermore: Well, that's a good question. It's a tough political question. I think that it kind of came a little bit as a third way approach. So you had had the Waxman-Markey bill, which passed the House, and so at a certain level that became the default bill, for good reason, a house of Congress had passed it and it was sent to the Senate. And really, the Kerry-Graham-Lieberman approach builds off of that and I think that it was really you have to look back to the Waxman-Markey bill in the House to kind of give you an answer to that question. But the Cantwell bill, the Cantwell-Collins CLEAR Act, I think, does have steam behind it. It's a different kind of steam. You see a lot of independent parties interested in it, you see a lot of editorial boards interested in the bill, you see a lot of economists interested in the bill and so it's a different group. Within the kind of beltway it's certainly this process. There's also a certain amount of mystery that surrounds this bill because we haven't seen it yet, so people are very curious about what they're going to see. Once we have a bill we'll be able to kind of make some decisions about what's the right way to go. They've talked about incorporating aspects of the CLEAR Act into their bill and so that is also something that could happen and that might change the dynamics somewhat. So it's still a little bit of wait and see, but apparently in the near future the big reveal will happen and we'll have a chance to analyze it.

Monica Trauzzi: What has the reaction been on the Hill to the release of this report and your findings?

Michael Livermore: I think people are interested, people are definitely interested. Again, it's the kind of a case where people are curious about the CLEAR Act. You know, they're still waiting on this other process, but they want to know what's in there. And we have had positive feedback from folks. I think kind of the message that this is going to lead to innovation, that this is going to have positive job consequences. We also look at regional disparities and on the basis of analysis that's out there, it turns out that there's not a lot of regional disparities and it's actually very progressive. So it's not hurting working families, it's not hurting middle income families and I think all of those things are very important and the economic questions are really essential right now, so people are focused on it.

Monica Trauzzi: OK, we're going to end it there. Thank you for coming on the show.

Michael Livermore: Sure, my pleasure.

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

[End of Audio]



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