CO2 costs the planet but helps our wallet

Sarah Gardner Jan 30, 2007

KAI RYSSDAL: Over on the other side of the Capitol Rotunda Senator Barbara Boxer got an earful today. Boxer’s the new chair of the Environment and Public Works Committee. And she invited her Senate colleagues to present their ideas on how to control global warming. Mandatory caps on greenhouses gases is one popular option. But critics like the president say regulating carbon dioxide would threaten economic growth. Sarah Gardner reports from the Marketplace Sustainability Desk, protecting both the climate and the economy is no easy thing.

SARAH GARDNER: When you ask the experts whether we can regulate greenhouses gases without dinging the American economy, don’t expect a simple answer.

“I think some new industries will be created. Some existing industries will be harmed.

“It depends on what your propositions are.”

“There’s also an issue, of course, of the effects throughout the economy would not be uniform.”

I knew it was too simple a question. But economist Anne Smith at CRA International says one thing is clear. When it comes to making a serious dent in global warming, there’s no free lunch. That’s because cheap, carbon-dioxide-emitting energy is what keeps the economy ticking right now.

ANNE SMITH: It’s what keeps us warm. It’s what gives us light so we can work into the evenings, so we can drive our cars and get quickly across town.”

If you limit CO2 emissions from cheap fossil fuels, industry will be forced to switch to pricier alternatives — at least in the short runa€¦

SMITH: So, this higher cost of energy inevitably will reduce the economic growth that we would otherwise be able to achieve.

So the real question is, how much will carbon regulation cost and is it worth it? The answer to that last question is largely political. But Washington is trying to nail down the price. Howard Gruenspecht is deputy administrator at the Energy Information Administration. His office crunched the numbers on a carbon-cap bill sponsored by New Mexico’s Jeff Bingamana€¦

HOWARD GRUENSPECHT: We found that by 2030 his proposal would lower the projected size of the economy by a quarter of 1 percent and that translated into $59 billion.

The study also projected gas prices would rise about 12 cents a gallon — that’s around 5 percent. Electricity and natural gas bills? Those would increase about 11 percent. Gruenspecht’s office has not analyzed a tougher carbon-cap bill backed by presidential hopefuls McCain, Obama and Clinton. But we can reasonably assume it would squeeze the economy more.

BILLY PIZER: The cost to the economy depends on how aggressively you pursue emission reduction.

Billy Pizer at Resources for the Future. He says this is the delicate balancing act Congress faces. Clamp down on global-warming emissions too much, you risk the economy. Clamp down too little, you risk the environment. But right now it’s all economic models and projections. The only real-world example is overseas.

MARK NICHOLLS: There’s almost no evidence of any damage to the European economy as a consequence of the cap ‘n’ trade scheme.

That’s Mark Nicholls, editor of Environmental Finance magazine in London. He’s tracking the ups and downs of Europe’s fledgling carbon-cap program.

NICHOLLS: We’ve have had quite high prices in the first phase. That didn’t drive companies to the wall, it didn’t lead to huge howls of protest from consumers.

That said, the E.U.’s program doesn’t really get serious until 2008. And experts caution the European scheme is somewhat different from American proposals.

David Victor, head of Stanford’s Program on Energy and Sustainable Development, says despite uncertainties, Congress should move quickly to combat climate changea€¦.

DAVID VICTOR: This will cost something. I think we’re going to discover over the coming decades that the cost of this is going to be very small compared to the size of the economy. And we won’t even really notice it.

That’s because a nationwide carbon cap will drive innovation, Victor argues. And that will produce an alternative to energy that spews CO2. All well and good. But economists say those innovators better hurry up with an economical alternative or consumers will notice.

I’m Sarah Gardner for Marketplace.

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