“Cap and Trade” or “Cap and TAX”: The Economic Impact of the Greenhouse Gas Regulations on Franchised Businesses 2 July 2009
Highly Regulatory Approach Likely drag on long-term US Economic Growth
Charles River Associates Study Business users and consumers will face higher energy costs Higher energy production and transportation costs are expected to lead to increased costs of other goods and services throughout the economy. “As the costs of goods and services rise, household disposable income and household consumption would fall.”
Charles River Associates Study Cap and trade will cause more investment in costly forms of renewable energy, directing funding away from investments with greater potential to enhance productivity The economy will grow more slowly and job growth expected to decline. “Overall, the economy would be expected to grow more slowly, leading to substantial differences in disposable income and personal consumption.”
Cost of Carbon Allowances Obama Administration’s FY 2010 Budget Proposal curbs carbon emissions by cutting use of conventional energy. As the cap tightens with time, the cost of reducing emissions becomes more expensive and as a result, the cost of a carbon allowance increases. In 2015, carbon allowance is estimated to be $29/ metric ton of carbon dioxide. By 2020, the allowance cost goes to $66/metric ton. By 2030, the allowance cost could reach $116/metric ton of carbon dioxide.
Job Losses Initial net job loss of 800,000 in 2015 Net job losses projected to more than double by 2020 to 1.9 million and continue to mount to a net loss of approximately 3.2 million total jobs by 2025 from baseline levels While all regions of the country would be adversely impacted, the Southeast, Oklahoma, Texas, and California would be disproportionately affected
Energy Costs The cost of energy paid for business users and consumers projected to increase, because of substitution away from less costly fuels. Natural gas demand, primarily for electricity generation, is projected to increase over coal. Motor fuel costs are projected to increase as allowances would need to be purchased for the emissions associated with the use of motor fuels. Electricity costs increase by 27% (3.6 cents per kWh) relative to baseline level in 2020, rising by 44% (5.8 cents per kWh) in 2025.
Household Purchasing Power Projected impacts on household purchasing power would be severe and follow a pattern similar to employment impacts. Per household purchasing power is estimated to decline by $1,020 in 2015, By $1,381 in 2020 By 2030 the average American household’s annual purchasing power is estimated to diminish by approximately $2,127.
Investment Aggregate U.S. investment is projected to drop by 1.3% below baseline level in 2015 but then is projected to increase over the 2020 – 2030 timeframe as required investments in lower emitting GHG technologies and energy efficiency improvements are put in place in order to comply with ever more stringent carbon caps. By 2030, investment is estimated to be 5.6% above baseline level. The increasingly stringent carbon caps would be expected to redirect capital from higher to lower productive uses, for example, by forcing premature retirement and abandonment of conventional energy technologies and sources, deferring productivity enhancing investments across a large swath of the economy. This investment shift would be expected to have a disproportionately large adverse impact on future productivity growth.
Overall Economic Activity By 2025, GDP, a commonly used measure of total economic activity, is estimated to be roughly 0.7% ($150 billon) below the baseline level driven principally through declining consumption. Commercial transportation services, electric generation and agriculture would be among the disproportionately affected economic sectors. In 2030, GDP is estimated to be roughly 0.2% ($39 billion) below the baseline level. GDP decline is expected to be even more severe reaching 1.3% by the year 2040.
IFA Response IFA is a Steering Committee Member of the Coalition for Affordable American Energy (CAAE) IFA Key Vote letter to US House (June 25, 2009) “The IFA supports efforts to reduce global greenhouse gas emissions, but we believe that the solution must not unilaterally impose sharply higher costs on U.S. business consumers of energy.” IFA grassroots planned in advance of Senate action