Debunking False Energy Claims

Studies from the Milken Institute and Heritage Foundation provide misleading information about the clean energy economy, detracting from the real debate, writes Rebecca Lefton.

A U.S. delegate walk past solar panels on display outside a Future House, a clean-energy resident development project in Beijing, China, on July 16, 2009. As China aims to lead the world's clean-energy race, reports from the Milken Institute and the Heritage Foundation have become a distraction on the real debate on clean energy economy. (AP/Andy Wong)
A U.S. delegate walk past solar panels on display outside a Future House, a clean-energy resident development project in Beijing, China, on July 16, 2009. As China aims to lead the world's clean-energy race, reports from the Milken Institute and the Heritage Foundation have become a distraction on the real debate on clean energy economy. (AP/Andy Wong)

The president reiterated his commitment to comprehensive clean-energy and climate reform in his State of the Union address last week and his budget proposal released on Monday. The bipartisan effort to advance legislation in the Senate remains strong, and Americans continue to strongly support action on global warming.

Yet recent reports from the Heritage Foundation and the Milken Institute—the latter commissioned by the National Association of Manufacturers—are misleading about how these energy reform measures will affect the economy. They are a distraction from the real debate about how to best move forward to secure our economy and national security, and protect our planet from the effects of climate change. Here’s a quick look at what they got wrong.

Milken’s mistake

The Milken Institute’s “Jobs for America: Investments and Policies for Economic Growth and Competitiveness” proposes reducing the U.S. corporate income tax rate to “match” Organisation for Economic Co-operation and Development countries. Yet many of these countries actually have higher corporate tax rates and providing regulatory certainty would go further toward bringing investment into the United States.

Most other countries have higher corporate tax rates. Milken argues that reducing the tax rate to 22 percent would increase U.S. exports and boost domestic competitiveness. But Milken fails to recognize that the effective tax rate—the rate that companies actually pay—is only around 22.2 percent, which is lower than the OECD average. Companies already enjoy numerous tax incentives that encourage investment and growth in the United States. Both the amount and value of some of these incentives increased in the past two stimulus packages and further business tax breaks are included in the president’s budget.

In a time of fiscal uncertainty, we need regulatory certainty. Instead of focusing on lowering already low corporate tax rates, we should be providing businesses the regulatory certainty they need to make the United States a better place to invest. Passing clean-energy and climate legislation will send clear market signals rewarding companies that advance clean-energy innovation and technology. Clean-energy reform will level the playing field and put the United States back in the lead of the clean-energy race where it is currently falling behind.

Heritage hoodwink

The Heritage Foundation’s “What Boxer-Kerry Will Cost the Economy” is selective and incomplete. It leaves out major provisions in the bill, mainly consumer assistance and energy efficiency. And its analysis of the Kerry-Boxer bill, or the Clean Energy Jobs and American Power Act (S.1733), relies on the IHS Global Insight model that projects cap-and-trade costs only, and these costs are grossly overestimated. It also effectively ignores any benefits from energy efficiency and investments in renewable energy technology.

Kerry-Boxer will stimulate innovation and growth in clean-energy technologies. Heritage does not incorporate energy efficiency and renewable energy mandates and standards because it says they are redundant and inefficient. It simply notes that, “overall losses to GDP and employment are likely to be estimated” as a result of implementing such standards and mandates. They fail to recognize the key role these will play. As the EPA’s analysis of S. 1733 shows, “the bill would transform the structure of energy production and consumption, moving the economy from one that is relatively energy inefficient and dependent on highly-polluting energy production to one that is highly energy efficient and powered by advanced, cleaner, and more domestically-sourced energy.”

Revenue generated from the program will help get cleaner sources of energy off the ground, including natural gas, renewables, nuclear, and coal using carbon capture-and-storage technology. The Senate’s Clean Energy Jobs and American Power Act also has provisions to spur investments in these types of technologies. Such investments will give the United States a much-needed competitive edge in innovation and the manufacturing of new clean-energy technologies.

Consumers are protected in the bill. Heritage makes extremist warnings of higher energy prices, but ignores consumer protection and cost-containment provisions in the bill. The pollution reduction program allocates 30 percent of revenues from the program to local electric distribution companies, which are required to “protect consumers from electricity price increases.” It also overlooks cost-containment provisions, including a minimum reserve auction price and a strategic reserve.

Manufacturers are protected in the bill. Kerry-Boxer provides assistance for energy-intensive and trade-sensitive industries, allocating 15 percent of allowance revenues in 2014 and 2015 to help manufacturers develop more efficient practices. The Environmental Protection Agency concludes that this allocation is more than sufficient to protect the manufacturing sector.

Ratepayers will only have modest costs. Under both Kerry-Boxer and the House-passed American Clean Energy and Security Act, the Environmental Protection Agency estimates that average costs per household will be between $80 and $111 annually. The Natural Resources Defense Council estimates that by 2020, the average American household will save $6 per month in energy costs due to the investment and efficiency provisions in the American Clean Energy and Security Act, which is so similar to Kerry-Boxer that the costs would be the same. The states with the biggest savings are also those most dependent on coal: Ohio, West Virginia, and Pennsylvania, among others.

Clean-energy and climate reform will save consumers money. The average family’s annual spending on oil, gas, and electricity rose by more than $1,130 under the Bush administration’s energy policies. An analysis of ACES finds that low-income consumers would receive $40 per year in 2020, and the American Council for an Energy-Efficient Economy projects that Americans could save $750 per household by 2020 and $3,900 by 2030.

Clean-energy and climate reform will create jobs. Heritage cites two European studies to promote its anticlean-energy initiatives message. Yet both studies have been widely discredited. A Center for American Progress and University of Massachusetts study found that investing $150 billion in clean energy would create approximately 1.7 million new jobs in industries as diverse as new materials science, engineering, construction, and manufacturing. The same study found that investing in clean-energy projects creates three to four times more jobs than the same expenditure on the oil industry. The Pew Environment Group found that green jobs in the United States grew 9.1 percent from 1998 to 2007, compared to overall job growth of just 3.7 percent. What’s more, Kerry-Boxer provides green jobs and worker transition programs for jobs and education in clean energy, renewable energy, energy efficiency, and climate change adaptation.

Investments in clean-energy jobs and incentives are paying off. The American Recovery and Reinvestment Act included $80 billion for clean-energy initiatives. The process for distributing funding has been lengthy—only 6 percent of Department of Energy funding had been spent at the end of December 2009—but ARRA’s clean-energy provisions have already saved or created 63,000 jobs.

Clean-energy and climate legislation will make us more competitive. The United States is losing the clean-energy race. Other countries such as China are forging ahead with clean-energy policies and investments that are creating jobs and generating industries to help them become “the world’s leading exporter of clean energy technologies.” China is also the second-largest producer of scientific knowledge, right behind the United States. China plans to generate 15 percent of its energy from renewable sources by 2020. The country is the largest manufacturer of wind turbines, and is poised to be the leading manufacturer of solar panels. The Chinese are benefiting from an expanding economy and job growth; jobs in Chinese renewable energy industries are growing by 100,000 a year, totaling to 1.12 million in 2008.

Acting now will help our economy. Milken and Heritage do not consider the costs of inaction. The longer we wait to begin our clean-energy transformation, the further behind our competitors in China and Europe we will be, and the more expensive it will be to catch up. The majority of 144 economists polled by New York University’s Institute for Policy Integrity, or 84 percent, agree that global warming’s effects “create significant risks” to the economy, and 94 percent agree that the United States should join climate agreements to limit global warming. The Securities Exchange Commission said for the first time that companies should disclose to investors the risks that climate change poses to their businesses. The Institute for Policy Integrity at the New York University School of Law found that failing to deal with climate change will cost our economy an average of $27 million to $375 million every day from now until 2050. This does not include environmental costs or costs to public health.

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Rebecca Lefton is a Researcher for Progressive Media at American Progress.

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Rebecca Lefton

Senior Policy Analyst