August 14, 2009

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Global Warming Bill Would Cut U.S. Economic Growth, Study Says

The bill meant to combat global warming that passed the U.S. House of Representatives in June would decrease the Gross Domestic Product of the United States by $2 trillion to $3 trillion between 2012 and 2030, a study shows.

The study on the economic impact of the American Clean Energy and Security Act was commissioned by the American Council for Capitol Formation (ACCF), a non-profit that examines tax and environmental policy, and the National Association of Manufacturers (NAM), the nation’s largest manufacturing trade organization.

The analysis was conducted by the Science Applications International Corporation, a private research company.

The global warming legislation, sponsored by Rep. Henry Waxman (D-Calif.) and Rep. Edward Markey (D-Mass.), passed the House in June by a 219-212 vote. The Senate may consider its own version of the bill this fall.

The legislation would impose caps on the amount of carbon that U.S. industry could emit and would allow manufacturers to trade emission allowances doled out by the government.

Waxman and Markey’s offices did not return calls seeking comment on the study.

“High energy prices, fewer jobs, and loss of industrial output are estimated to reduce [annual] U.S. Gross Domestic Product by between $419 billion and $571 billion by 2030,” the study says.

“Cumulative GDP losses range between $2.2 trillion and $3.1 trillion dollars over 2012-2030 period,” it says.

NAM Executive Vice President Jay Timmons said in an Aug. 12 conference call that the study demonstrates that American jobs will be lost because of the Waxman-Markey global warming bill.

“By 2030 U.S. industrial output level will drop between 5.3 and 6.5 percent, and in turn, this will cost between 1.8 and 2.4 million jobs,” said Timmons. “The manufacturing sector actually absorbs a disproportionate burden, nearly two-thirds of those overall job losses.”

“Further,” he said, “the legislation pushes off job losses to the future by giving away allowances and exemptions on the front end, and meanwhile, of the 18-year period (2012-2030), energy costs are creeping upward and household incomes downward.

“Therefore, in 2030, the study shows that industrial states take a heavy hit in employment,” he said.

Margo Thorning, an economist with ACCF, attributed the anticipated loss of jobs to the “impact of the higher energy prices, slower productivity growth, and the net outflow of new investment.”

The ACCF/NAM study compares job losses and GDP under the Waxman bill to baseline projections without such a bill.

“The projections are based on our forecast for the economy, which basically we’re relying on the EIA (U.S. Energy Information Administration) assumptions for that,” said Thorning. “So this baseline includes all of the other energy legislation that’s been passed in the last several years as well as the economic stimulus bill that was passed this spring.”

Adele Morris, policy director of the climate and energy project at the Brookings Institution, agrees with the assessment that the Waxman legislation will interfere with GDP growth.

“What we’re projecting is a decline to GDP relative to what it would have been without cap and trade,” she told “What we see is a deflection of GDP from its business as usual trajectory.

“In fact, our estimates are that … under cap and trade you have to wait until 2051 to get to the same GDP that you would have gotten in 2050 without the cap and trade program,” said Morris.

“It’s behind by one year in 2050, but it grows consistently,” she said.

In regards to job losses, Morris contends that it will only be a short- to medium-term phenomenon.

“We did an analysis with our own model, and we also showed some loss in employment from a long-term commitment to reduce emissions, and our model goes out to 2050, but what we show is that there’s a sort of shorter run effect,” Morris told

“I mean short- to medium-run, because what happens is capital is moving from the fossil intensive sectors to the less fossil intensive sectors,” she said. “So then you’re going to be losing jobs in some sectors and creating jobs in some other sectors.”

Morris pointed out that the Brookings Institution analysis only looked at the cap and trade provision of global warming legislation.

“Most models are going to show that in the long run people are going to work somewhere and the question is what is the long-run effect after the economy has adjusted to these sector shifts,” she said. “So the long-run impact on employment that we see is quite small.”

Morris said the global warming bill should be enacted for environmental purposes despite potential short-term job losses.

“Even if there’s a negative effect on baseline job growth in the short run, it’s still important to do,” Morris said. “So then the focus in my mind should be in a way to do it with the least effect on the economy, and it raises the point of trying to do everything in the most cost-effective way possible.”

According to a study by the liberal Center for American Progress and the University of Massachusetts-Amherst Political Economic Research Institute, $100 billion invested in green energy strategies has the potential to create 2 million new jobs, roughly 800,0000 of which will be in the construction sector.

But Thorning says her organization’s study takes into account jobs that will be created in alternative energy.

“Yes, this study does take [into] account jobs that would occur in these newer technologies in renewable energy,” she said, “but even when you factor in the newer jobs or more job creating fields for nuclear generating capacity and so forth, we still overall lose jobs.”

A July 8 Government Accountability Office report on climate change legislation said that the chemical, primary metals, paper, and non-metallic mineral industries in the United States bear the brunt of the impact from a cap-and-trade program, losing jobs to foreign competitors.

The GAO called these industries “trade and energy intensive.” They account for 4.5 percent of Gross Domestic Product.

“Together, these four industries provided 23 percent of total U.S. manufacturing output in 2007 and had trade flows of about $500 billion,” said the GAO report.

Loren Yager, GAO’s director of international affairs, told that employees may have to switch industries. “Employment may shift to other industries where there is more growth,” he said.

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