The economic impacts of carbon pricing in the United States

Would carbon pricing have a large affect on household costs? In the previous round, my opponent claimed that, “The Obama Administration...estimated that Cap and Trade could cost as much as $1,761 a year per household.” However, this figure is not correct, and it did not even come from the Obama Administration. In reality, the Treasury Department estimated that the costs of implementing a cap and trade system could amount to 100–200 billion dollars a year. However, the Treasury never specifically stated that such a system would cost the average American household 1,761 dollars. This figure came from Republican Senator Lamar Alexander who divided the number 200 billion by the number of households in the US. [1] However, such a calculation is severely misleading. As the Treasury Department made extremely clear, their estimate did not consider the benefits of implementing a carbon pricing system. [1] There are several such benefits which clearly need to be taken into account when determining the costs of implementing a carbon pricing system on American households. For instance, placing a price on carbon emissions would create a revenue stream. By ignoring the benefits of carbon pricing, Senator Alexander effectively assumed that this revenue would disappear into a black hole. However, this obviously would not happen. In reality, the revenue generated from placing a price on carbon could be used to fund energy efficiency and energy bill payment assistance programs. These programs could potentially help offset a large portion of the increase in energy prices that Americans would face. As one study found, the impacts of implementing a carbon pricing system on monthly utility bills range from a $5.60 decrease to a $2.80 increase. [2-5] It bears repeating that the potential decrease in electric bills is due to the energy efficiency programs established through the provisions of a carbon pricing system. After accounting for the positive effects of such programs, studies have found that implementing a carbon pricing system would cost the average household a total of only $84–160 per year. [2-5] This is equivalent to an increase of $0.67 to $1.28 per person per week. Clearly, such a small rise in household costs would barely be notable. Would implementing a cap and trade system encourage businesses to move to other countries? My opponent claimed that, “Cap and Trade...incentivizes companies to move to countries where Carbon Pricing is not a policy, bringing millions of jobs with them.” Under most cap and trade systems, only the energy sector is required to reduce carbon dioxide emissions. [6] Most businesses which are not directly connected to this sector would benefit from implementing a cap and trade system. For example, let’s consider the implications of the Regional Greenhouse Gas Initiative, a cap and trade system in the Northeastern United States. As one study concluded, this initiative reduced the average business’s energy bills by 15-30% through investments in energy efficiency. [6] Additionally, the Regional Greenhouse Gas Initiative created many jobs. As the same study noted, “Investments in energy efficiency and renewable energy drive demand for new products and services and stimulate the economy with energy bill savings, thereby creating jobs. A 2010 analysis by Environment Northeast estimates that energy efficiency programs funded with CO2 allowance proceeds through December 2010 are projected to create nearly 18,000 job years – that is, the equivalent of 18,000 full-time jobs that last one year. Employment benefits result from state program investments and from the reinvestment of consumer energy bill savings in the wider economy. While there has not yet been a similar analysis of RGGI-funded renewable energy programs, data...shows every $1 million invested in renewable energy systems creates about six full-time manufacturing jobs, as well as additional jobs in construction and facility maintenance.” [6] Clearly, many businesses would benefit from a nationwide carbon pricing system. Under such a system, these businesses would be less likely to relocate in a foreign country. Are cap and trade systems effective at reducing greenhouse gas emissions? My opponent claims that, “In Europe, where Carbon Pricing is practiced, there has been no noticeable impact on the environment. An Open Europe Study found that installations covered by the ETS actually saw Emissions rise by 0.8%.” This statistic is inconsistent with many other credible estimates. According to the prestigious MIT, the ETS has cut European emissions by 120–300 million metric tons of carbon dioxide during its first phase—up to 5 percent of emissions from the covered sectors. [7] In addition, other cap and trade systems have been highly effective. For example, the United States enacted a cap and trade system in 1995 to reduce anthropogenic sulfur dioxide and nitrous oxide emissions. By 1996, these emissions had decreased by 3 million metric tons. [8] The EPA estimates that the benefits of this cap and trade system will exceed the costs by nearly a factor of 30 to 1 in 2020. [9] Clearly carbon pricing systems are highly effective at reducing atmospheric pollution. Do the overwhelming majority of economists support carbon pricing? In the last round, my opponent made the following argument: “Pro claims that economist unanimously support Carbon Pricing. In fact, all my opponent showed was that Climate Economist support carbon pricing. This is different from all economists.” This argument is rather bizarre. In this specific debate, a survey of economists with expertise on climate change is much more meaningful than a survey of economists in general. Bottom Line - Carbon Pricing is Relatively Cheap: In summary, carbon pricing systems have very minimal economic impact. Compared to the real-world in which increasing carbon dioxide emissions will lead to numerous adverse affects, putting a price on carbon will certainly prove to be a net economic benefit. Although energy prices could rise modestly, energy costs would be offset through increased efficiency. Total household costs would rise somewhere in the ballpark of $1.00 per person per week. Studies which conclude costs will be significantly higher either make unrealistic assumptions or only consider half of the picture. 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