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Real Reductions America Can Easily Afford

EPA Modeling Shows American Power Act Brings Economic and Climate Benefits

SOURCE: AP/Drew Angerer

Sen. Joseph Lieberman, (I-CT), left, and Sen. John Kerry, (D-MA), take part in a news conference on Capitol Hill on June 15, 2010, to announce the results of the Environmental Protection Agency's economic analysis of their American Power Act.

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Sens. John Kerry (D-MA) and Joe Lieberman (I-CT) released analysis today of their American Power Act, or APA, by the U.S. Environmental Protection Agency. The EPA’s analysis definitively demonstrates that we can reduce our carbon pollution and jumpstart the clean energy economy at a very small cost to American consumers. This analysis is also consistent with several other studies showing that the American Power Act would create jobs, reduce consumer energy prices, and help the United States lead the world toward stabilizing carbon emissions at safe levels by 2050.

The EPA concluded that the APA would be affordable for American families if it is enacted. The average family will have to spend less on energy if this important legislation passes, primarily because of increases in energy efficiency mandated and stimulated by the legislation. EPA projects that passing the APA would reduce Americans’ annual energy expenditures by 10 percent by 2020.

The agency also finds that Americans will be more prosperous in 2020 than we are today. While families will on average consume $79 to $146 less per year in 2020 if the bill passes, this pales in comparison to how much consumption will increase from 2010 due to predicted economic growth. The EPA also concluded that the bill’s consumer protection programs work so well that those who can least afford a decline in consumption—low-income households—will actually be better off under this bill than in a future without it. In fact, the poorest 10 percent of the population would be almost $160 better off in 2010 under the APA.

It’s important to note, however, that the EPA analysis is primarily focused on environmental modeling, which means it doesn’t include everything one would want to know about the bill’s economic effects. The Center for American Progress has previously argued, for example, that any analysis of climate legislation’s economic impact is incomplete without discussing climate change’s devastating effects. EPA does not explicitly model the economic benefits of reducing greenhouse gas emissions, but they do recognize the importance of this issue, stating, “Economic effects of these impacts are likely to be significant and largely negative, and to vary substantially by region. . .”

Among other things, EPA also doesn’t study how the bill would affect jobs and employment, the federal budget, or oil consumption. But fortunately the EPA analysis is not the only study of how the APA would affect the United States.

Recent work from the independent Peterson Institute (using a U.S. Energy Information Administration model) and ClimateWorks (using a McKinsey model) both show that the APA would lead to new jobs for American workers. These studies find that employment levels will be higher by an average of 203,000 to 440,000 jobs each year between 2012 and 2020 if the bill becomes law.

The Congressional Budget Office found that similar climate legislation would generate revenue for the federal government. Upcoming CBO analysis of the APA will also likely show that passing this bill will actually reduce the government’s budget deficit.

The Peterson Institute analysis further shows that Americans will use less gasoline and import far less oil in 2030 if the Senate passes the APA than under a business-as-usual scenario. Despite the oil industry’s claims that climate legislation will make gasoline unaffordable, the EPA finds that this legislation will only increase the price of gasoline by about a dime by 2020—well within gasoline’s normal price volatility.

The APA will also encourage American businesses to invest in clean energy technologies that will power our low-carbon future, and it will drive significant increases in renewable energy. What’s more, the EPA predicts that there will be seven-and-a-half times more generation from coal with carbon capture and storage if the Senate passes this bill.

Finally, the EPA convincingly answers an old criticism leveled by many who are opposed to U.S. action on this global problem: If the United States acts to reduce its emissions will it make any difference in global levels of carbon pollution? EPA’s answer is a resounding yes.

EPA modeled three scenarios for global emission reductions based on the APA’s passage, which is unlike their analysis of the House of Representatives’ climate bill from last summer. Their first scenario assumes concerted global action, where the United States follows the carbon reduction path laid out in the Kerry-Lieberman legislation and the other developed countries of the world follow suit, keeping good on their pledge at the Group of 8 meeting in July last summer of cutting their emissions 80 percent bellow 2005 levels by 2050. This scenario assumes the plausible outcome whereby developing countries adopt a policy beginning in 2025 that caps emissions at 2015 levels and reduces emissions to 26 percent below 2005 levels by 2050.

The scientific goals for achieving climate safety established by the Intergovernmental Panel on Climate Change are that we should aim to hold temperature increase to 2 degrees Celsius over pre-industrial levels by 2050. Under this first APA scenario, EPA estimates that there is a 75 percent chance of keeping temperature rise at 2 degrees and a 95 percent chance of holding temperature rise at 95 percent.

But EPA also modeled a more modest scenario for those such as Sen. James Inhofe (R-OK), the ranking Republican on the Senate Environment and Public Works Committee, who find such developing country action overly optimistic. Under the second scenario developing country contributions to global emissions reductions do not effectively start until they make good on their promise to cut emissions by 80 percent by 2050. On such a “we act only if you act” scenario, which imagines the contribution of developing countries to be nothing until 2050 and from thereafter to hold their emissions at 2050 levels, there is still a 50 percent chance of holding temperature increase under 3 degrees Celsius and an 11 percent chance of holding the increase at 2 degrees. Of course, we would also need to pass APA for this to work.

Clearly this second scenario does not represent where we want to wind up. But it does illustrate how important U.S.-led action is for developing countries. We can expect a more realistic “tit-for-tat” scenario if the United States acts. If the United States makes good on its promise to reduce its emissions now—rather than waiting until 2050 to act—then the developing countries that matter the most—the major emitters such as China and India—will likely reduce their emissions in response, which increases the likelihood that we will stabilize temperature increase at 2 degrees Celsius for each year we move forward.

The third scenario that the EPA modeled was no global action, which, as one might expect, essentially gives us no chance of holding temperature increase at 2 degrees. But when we step back and look at the total package APA offers on the plus side of the ledger—the reduced energy costs, decreases in dependence on foreign and unsafe sources of oil, and the job creation possible from this legislation—the best choice is clearly enacting this legislation and improving our global chances for achieving climate safety.

Richard W. Caperton is a Policy Analyst and Andrew Light is a Senior Fellow on the energy opportunity team at the Center for American Progress.

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