Calculating the costs of cutting carbon

GELLERMAN: So let’s get down to the nitty-gritty. If Congress does pass a bill capping climate- changing gases, what’s it gonna cost you? An ad by the U.S. Chamber of Commerce says if you think you’re gonna get off cheap…

[ALARM BELL]

GELLERMAN: …wake up and smell the coffee. The Chamber predicts a law restricting green house gases will usher in a ‘dark age’ in America, cost consumers trillions, and force 3.4 million of us out of jobs.

[U.S. CHAMBER OF COMMERCE AD: “Climate legislation being considered by Congress could make it too expensive to heat our homes, power our lives, and drive our cars. Is this really how Americans want to live?”]

GELLERMAN: No way. But are these dire predictions based on solid facts? Turns out Congress, the U.S. Chamber and other interest groups rely on about a dozen economic models to forecast the future. These models are designed by private companies, think tanks and governmental agencies. They’re complex, and according to Janet Peace, misused. She’s the Senior Economist with the Pew Center on Global Climate Change and she recently analyzed the various economic models. Hi Janet!

PEACE: Hi there.

GELLERMAN: How accurate are these models?

PEACE: Well they’re not accurate at all, and I think most people who actually run these models don’t profess that they’re accurate. They’re simplifications on reality, they’re there to give us some insights, but really they’re only as good as the assumptions and the data that you put into them.

GELLERMAN: I’m looking at one from July ’07 that the EPA used in its model, and it found that if the Lieberman-Warner Climate Security Act were made into law, it would raise gas prices by 68 cents per gallon by 2050. I think it went up 68 cents a gallon last week.

PEACE: And it’s gone up a lot more than that over the last year and a half. The models ? they’re not crystal balls. They’re not gonna give you the exact answer. I mean how can we expect a model to forecast what technology’s gonna be 50 years out. I mean 20 years ago I wouldn’t have envisioned that I’d have a little computer that goes in my pocket. And so models are very good at looking backwards, but they’re not very good at anticipating surprises or new technology.

GELLERMAN: Or price of gasoline. If it can’t tell you what the price of gasoline is next week, how is it gonna do it in 2050?

PEACE: (chuckles) Oh yeah, absolutely, and that’s why policymakers need to be looking at the insights from the models, and not the absolute numbers that the models are spitting out. And when you have model after model after model that, you know, tell you the same thing ? that more offsets make it cheaper, that complementary policies bring technology on sooner and faster ? those are the kind of insights that policymakers need to be using, rather than saying, okay, it’s gonna be $22.50.

GELLERMAN: So they’re like rearview mirrors ? that they’re looking back, and then they’re projecting forward. But I’m looking at the report by the National Association of Manufacturers and the American Council for Capital Formation ? they have a model that assumes that the amount of wind power that we’ll be producing in 2030 is going to be less than what we produced last year.

PEACE: Right, and if you think that well, maybe we’ve maxed out the number of sites for wind generation, that’s what you put into that model. But you have to realize that last year we didn’t have a climate policy, and we’re assuming that there will be a climate policy 50 years out. So I think it’s pretty unrealistic to assume that we’re not gonna have more, you know, low-carbon energy available when we have a policy that actually promotes that and streamlines it. And there are those who say well, we don’t have the technology to get us to where we need to go to. That’s frankly not accurate.

You know, one of the studies that we did at the Pew Center was looking at how to get technology deployed, and we found that it’s more cost-effective, it’s cheaper if you can give incentives and give firms a reason to use that technology, rather than doing just, you know, incentives or mandatory controls. It’s about ten times cheaper to do both than it is to do one or the other.

GELLERMAN: Well these models all seem to have dire consequences in terms of jobs, GDP, the prices of things, but they’re only looking, it seems to me, at the cost, not the benefits.

PEACE: (laughs) None of the models include the benefits. The benefits side of the story is probably the least studied of this whole question. But for the most part, I think people ? at least the folks that I deal with ? tend to agree that there’s no doubt that the costs of inaction are expected to be widely, or much higher, than the cost of taking action. With more and more warming, you know, you lose beaches, you have to change the infrastructure. There are increased wildfire in some places, decreased water in other places. But it’s inherently more difficult to figure out what the cost of an environmental impact is than it is the cost of a climate policy.

GELLERMAN: Or the benefit of a climate policy.

PEACE: Mm-hmm. Yeah ?

GELLERMAN: I mean, there could be more jobs; there could be bigger GDP. Prices on some things could go down.

PEACE: And some of the models actually, you know, suggest that ? that, you know, we put all these energy efficiency measure in, and people become more efficient and there’s lower demand for electricity, and the price of electricity goes down. So that’s the result in some of the models. But none of the models do benefits’ side very well. And I think that’s a really important thing to keep in mind, that without thinking about the benefits, any policy is gonna be too expensive.

GELLERMAN: So what are the insights that we can glean from these models, taken as a whole?

PEACE: Well, dealing with this climate issue, I think inherently has some costs associated with it, at least in the near term, because we’ve got to figure out different ways of doing what we’ve been doing for a long time. But over the longer term, you know, we may be putting ourselves in a competitive position; we may be creating new technologies that we can export around the world. So there are a lot of positives, and the insight from all the models is that the economy is gonna continue to grow, but it’s gonna cost a lot more if we can’t get that technology out there.

GELLERMAN: Janet Peace is the Senior Economist with the Pew Center on Global Climate Change. Ms. Peace, thank you very much.

PEACE: My pleasure.