ECONOMIC AND BUDGET ISSUE BRIEF

How Policies to Reduce Greenhouse Gas Emissions 

Could Affect Employment

Summary and Introduction

Human activities around the world are producing 

increasingly larger quantities of greenhouse gases, particu

larly carbon dioxide resulting from the use of fossil fuels 

and from deforestation. Because of concerns that the 

accumulation of such gases in the atmosphere will result 

in a variety of environmental changes over time that 

would have serious and costly effects, policies to reduce 

those emissions are being considered. Such policies would 

impose costs on the U.S. economy and affect patterns of 

employment throughout the country.

Adopting policies aimed at reducing emissions of green

house gases would shift the demand for goods and ser

vices away from fossil fuels and products that require sub

stantial amounts of those fuels to make or to use and 

toward alternative forms of energy and products that 

require lesser amounts of fossil fuels. Employment pat

terns would shift to mirror those changes in demand. 

Changes in employment in specific industries would 

reflect the amounts of greenhouse gases they emit 

(through production and use of their output) and the dif

ficulty of reducing their emissions of those gases. 

The Congressional Budget Office (CBO) has analyzed 

the research on the effects that policies to reduce green

house gases would have on employment and concluded 

that total employment during the next few decades would 

be slightly lower than would be the case in the absence of 

such policies. In particular, job losses in the industries 

that shrink would lower employment more than job gains 

in other industries would increase employment, thereby 

raising the overall unemployment rate. Eventually, how

ever, most workers who lost jobs would find new ones. In 

the absence of policies to reduce emissions of greenhouse 

gases, changes to the climate also might affect employ

ment; however, this brief does not address such changes 

because that effect would probably arise after the next few 

decades, and it has not been studied as carefully by 

researchers. 

Various industries would be affected differently by 

policies to reduce greenhouse gas emissions: 

B Coal mining would probably see the largest percentage 

decline in employment. Among fossil fuels—coal, 

petroleum, and natural gas—coal, when it is burned, 

produces more greenhouse gases per unit of energy 

than do the others. Moreover, coal is widely used to 

generate electricity, and electric utilities have some 

ability to substitute other sources of energy for coal. 

A mitigating factor for the coal mining industry could 

be the development of technologies to capture and 

store emissions of coalfired power plants. 

B Employment in oil and gas extraction and natural gas 

utilities would also be expected to decline as those 

fuels became more expensive and the demand for 

them declined. In percentage terms, the decline would 

be smaller than that in coal mining, though. Because 

oil is widely traded on international markets, contin

ued demand for it in other countries that did not 

implement emissionreduction policies would lessen 

some of the effects of the decline in domestic demand. 

Because the use of natural gas to generate electricity 

produces smaller quantities of greenhouse gases than 

does the use of coal, demand would probably shift 

from coal to natural gas in some instances, offsetting 

some or all of the reduction in demand for natural gas 

that would otherwise occur. 

B Mining (for materials other than coal), construction, 

and the industries that produce metals, nonmetallic 

mineral products (such as glass), chemicals, and trans

portation services—all of which use relatively large 

amounts of energy directly or indirectly—would prob

ably also experience reductions in employment, 

although the percentage declines would be relatively 

small.

CBO A series of issue summaries from

the Congressional Budget Office

MAY 5, 2010
2 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

B Over time, employment would increase in industries 

and sectors (such as services) whose products are less 

emission-intensive to produce and result in fewer 

emissions when used. Employment also would 

increase in industries that manufacture equipment for 

the production of energy using low-emission technologies such as nuclear, solar, and wind power.

Effects on Total Employment

By raising the prices of goods and services in proportion 

to the greenhouse gas emissions associated with their production and consumption, most policies to reduce emissions would affect total employment as well as the number of jobs available in various industries. Although many 

factors would influence the magnitude of those effects, of 

particular importance is how quickly and extensively 

labor markets would respond to sustained increases in 

energy prices. 

If businesses and workers adapted to the changing market 

conditions quickly—by shifting away from industrial 

processes that produce greenhouse gases, by adjusting 

product prices and wages accordingly, and (in the case of 

workers laid off from shrinking industries) by obtaining 

any necessary retraining and moving to locations of 

expanding industries to find employment—then the 

effect on the aggregate unemployment rate might be relatively small and short-lived. If, alternatively, businesses 

and workers adapted less rapidly, the effect would be 

greater and last longer.

A gradually increasing tax on greenhouse gas emissions or 

a cap-and-trade program like the one that would be 

authorized by H.R. 2454, the American Clean Energy 

and Security Act of 2009, would probably have only a 

small effect on total employment during the next few 

decades.1

 The experience of the U.S. economy over the 

past half-century in adjusting to a sustained decline in 

manufacturing employment provides evidence that the 

economy can absorb such long-term changes and maintain high levels of overall employment. From a peak of 

almost 20 million jobs in 1979, manufacturing employment fell to about 14 million jobs in 2007, but increasing 

employment in other sectors of the economy offset that 

decline. For example, from 2000 through 2007, employment in manufacturing fell by 3.5 million jobs, while 

employment in other sectors increased by 8.2 million 

jobs.

The increases in prices caused by a tax or a cap-and-trade 

program would cause workers’ real (inflation-adjusted) 

wages to be lower than they would otherwise be. Nearly 

all workers would choose to remain in the workforce and 

accept those wages. However, a small percentage might 

choose to work fewer hours or not at all, resulting in 

slightly lower total employment than would be the case in 

the absence of the policy. 

Effects on Workers

While the economy was adjusting to the emissionreduction program, a number of people would lose their 

job, and some of those people would face prolonged 

hardship.2

 The ability of employers to adjust the size of 

their workforce quickly in response to changes in demand 

is generally considered a source of strength for the U.S. 

economy, as resources (both capital and labor) are able to 

shift to sectors with higher productivity. Each year, millions of people are unemployed—that is, without a job 

and looking for work—for some time. Many of those 

workers are employed within a month or so. However, 

following the introduction of an emission-reduction program, some people who lost their job in a shrinking 

industry would have a difficult time finding a new job 

quickly. Some would leave the labor force altogether.

For many of those who lost their job in a shrinking industry, finding a new job would require substantial effort, 

flexibility, and time. Some would need to learn how to 

search effectively for a new job. Some would need to 

acquire new skills more suited to the job opportunities 

available to them. Some, especially those in communities 

with limited job opportunities outside of the shrinking 

1. A cap-and-trade program would set annual limits, or caps, on 

total emissions of greenhouse gases and would require entities regulated by the program to hold rights, or allowances, to emit greenhouse gases. After such allowances were initially distributed, 

entities would be free to buy and sell them (the trade part of the 

program). For further information, see Congressional Budget 

Office, The Economic Effects of Legislation to Reduce GreenhouseGas Emissions (September 2009). The employment effects of any 

particular legislation could depend on the details of that legislation. This brief does not address such effects for any specific piece 

of legislation.

2. See Congressional Budget Office, Long-Term Unemployment 

(October 2007) and Losing a Job During a Recession, Issue Brief 

(April 2010).
ECONOMIC AND BUDGET ISSUE BRIEF

HOW POLICIES TO REDUCE GREENHOUSE GAS EMISSIONS COULD AFFECT EMPLOYMENT 3

industries, would need to relocate to new areas with bet

ter job prospects. 

Even among those who found a new job relatively 

quickly, many would probably discover that the knowl

edge they acquired in the old job did not translate per

fectly to the new one. Those workers would probably see 

their earnings decline, even after being reemployed. 

Moreover, that decline in earnings would probably persist 

for a long time. For example, for men who lost a job as a 

result of a mass layoff during the 1982 recession, earnings 

15 to 20 years later were still about 20 percent lower on 

average than they were for similar men who did not lose 

their job.3

Declines in earnings would not be the only difficulty fac

ing those who lost a job. Some people would lose health 

insurance coverage associated with their previous 

employer, though the recently enacted health care legisla

tion will provide new opportunities for individuals to 

purchase health insurance. Moreover, people who lose 

their job tend to have more health problems later in life, 

and losing a job can cause family life to suffer.4

In cases in which a shrinking industry was the primary 

employer in a community, the entire community could 

suffer. The loss of employment and economic activity 

could erode the tax base, and homes could decline in 

value as laidoff workers sold their homes and moved 

away in search of employment opportunities elsewhere. 

Effects on Employment in Different 

Industries

The effects of an emissionreduction policy would vary 

substantially from industry to industry. Employment in 

emissionintensive industries and in industries whose 

products generate comparatively large amounts of green

house gases when used would be lower than what it 

would be in the absence of the policy—either because 

employment in those industries would grow more slowly 

or because it would decline. Meanwhile, employment in 

other industries would be higher than what it would be in 

the absence of the policy.

Conclusions about the magnitude of effects on employ

ment in specific industries during the next two decades 

are highly uncertain. That uncertainty occurs because 

such forecasting is inherently difficult and because syn

thesizing results from existing studies is complicated by 

differences in the policies that are considered and in the 

assumptions used about the types and costs of technolo

gies adopted in the future and about the flexibility of the 

labor market to adapt to change. In addition, the details 

of the emissionreduction policies could affect employ

ment for particular industries. 

Some General Considerations

Under an emissionreduction program, industries that 

produce carbonbased energy—coal mining, oil and gas 

extraction, and petroleum refining—would probably lose 

the most jobs in percentage terms relative to employment 

without the program. In addition, industries that use 

those forms of energy intensively, either directly or indi

rectly through other inputs, would also probably experi

ence declines; an example is the transportation industry, 

which relies on petroleum products and on equipment 

made from metals (such as steel and aluminum) that 

require substantial amounts of energy to produce. 

Industries that would be likely to gain employment as a 

result of the policy include those that produce alternative 

forms of energy, such as wind, solar, and nuclear energy, 

or the equipment to produce those forms of energy. In 

addition, industries and sectors that do not use substan

tial amounts of carbonbased energy either directly or 

indirectly—for example, most services—would probably 

employ more people than they would without the policy. 

International competition, which varies significantly 

from industry to industry, would also affect employment 

patterns.5

 If major U.S. trading partners did not imple

ment comparable programs, a U.S. program would put 

domestic firms in emissionintensive industries at a disad

3. See Till von Wachter, Jae Song, and Joyce Manchester, “Long

Term Earnings Losses Due to Mass Layoffs During the 1982 

Recession: An Analysis Using U.S. Administrative Data from 

1974 to 2004” (working paper, April 2009), available at 

www.columbia.edu/~vw2112/papers/mass_layoffs_1982.pdf.

4. See Sarah A. Burgard, Jennie E. Brand, and James S. House, 

“Toward a Better Estimation of the Effect of Job Loss on Health,” 

Journal of Health and Social Behavior, vol. 48, no. 4 (December 

2007), pp. 369–384.

5. For additional detail, see the statement of Peter R. Orszag, Direc

tor, Congressional Budget Office, before the House Committee 

on Ways and Means, Issues in Designing a CapandTrade Program 

for Carbon Dioxide Emissions (September 18, 2008).
4 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

vantage relative to their foreign competitors. The result 

would be reduced exports, increased imports, and, conse

quently, a greater decline in employment in those 

industries.

Estimating the Magnitude of the Employment Effects

CBO has reviewed economic modeling studies that pro

ject the effects of emissionreduction programs on 

employment in various industries. Of particular relevance 

are three studies—by analysts at Resources for the Future 

(RFF), the Brookings Institution, and the consulting firm 

CRA International—that present results for industries 

spanning the entire economy and that use models 

designed to analyze economywide policies in longterm 

equilibrium.6

 (See Box 1 for additional details about the 

studies.) 

CBO’s analysis focused on two years—2015 and 2025. 

Those two years show, respectively, a shortterm and a 

longerterm response in the economy. In 2015, the poli

cies would have been in place for only a few years and 

businesses would have had relatively little opportunity to 

change their capital stocks and make other longterm 

changes. In contrast, by 2025, businesses would have 

had more opportunity to make those changes, although 

significant economic changes might still occur even after 

that year. 

Projections of effects on employment in specific indus

tries are difficult to produce and vary from study to study 

for two broad reasons. First, the studies differ in the 

design of the policy that is modeled. In particular, the 

studies model policies that would reduce emissions by 

different amounts; and they differ in whether other poli

cies, such as free distribution of allowances (permits to 

emit greenhouse gases equivalent to a ton of carbon 

dioxide) to heavily affected industries or transition assis

tance for workers, are assumed to accompany the 

emissionreduction requirements. Second, the studies use 

different models of the U.S. economy and rely on differ

ent assumptions. Some of those assumptions relate to the 

types and costs of technologies that would be adopted, 

the development of emissionreducing technologies over 

time, and the difficulties that different industries would 

have shifting away from producing greenhouse gases. 

There is little basis for evaluating the accuracy of those 

assumptions because they depend on unknown future 

technologies. Other assumptions relate to the rate at 

which wages adjust in response to policy changes.

A number of the differences in the studies—especially the 

differences in the amount by which emissions are reduced 

and in the cost of alternative energy sources—manifest 

themselves at least in part through the projected price on 

emissions that would arise under the policies; that pro

jected price varies substantially from study to study.7

 To 

improve comparability among the studies, CBO scaled 

their projected changes in employment to reflect a com

mon price on emissions. Because two of the three studies 

examined emissionreduction policies similar to the one 

envisioned in H.R. 2454, CBO chose to scale the results 

to its own projections of the prices of allowances under 

that bill, which are (in 2007 dollars) about $18 in 2015 

and about $30 in 2025. Thus, if CBO’s estimate of the 

price of emissions in 2015 was 10 percent more than the 

price projected in one of the studies, CBO increased the 

employment effects shown by that study for that year by 

10 percent. Because of the scaling, none of the projected 

employment changes presented in this brief are the actual 

values presented in the studies themselves.

The scaled results should be viewed as rough approxima

tions because the employment effects projected by each 

study may not be strictly proportional to the price placed 

on emissions as assumed in the scaling procedure. More

over, scaling cannot adjust for all of the differences in 

assumptions among the studies. Scaling also cannot elim

inate the sizable uncertainty that surrounds such esti

mates, and the ranges of estimates reported here may not 

fully encompass that uncertainty. 

Projections of the shifts in employment are highly uncer

tain because they are sensitive to a number of factors that

6. Mun S. Ho, Richard Morgenstern, and JhihShyang Shih, Impact 

of Carbon Price Policies on U.S. Industry, Discussion Paper 0837 

(Washington, D.C.: Resources for the Future, November 2008); 

Warwick McKibbin, Adele Morris, and Pete Wilcoxen, Conse

quences of Alternative U.S. CapandTrade Policies: Controlling Both 

Emissions and Costs (Washington, D.C.: Brookings Institution, 

July 2009); and David Montgomery and others, Impact on the 

Economy of the American Clean Energy and Security Act of 2009 

(H.R. 2454) (prepared by CRA International for the National 

Black Chamber of Commerce, May 2009). CBO found other 

studies, but each of them either used an econometric model 

designed primarily for analyzing shortterm macroeconomic fluc

tuations and policy changes that are narrow in scope or presented 

estimates only for the short term or for selected industries. 

7. Some assumptions can have effects besides those on the projected 

price of emissions. For example, assumptions concerning when 

and at what cost coalfired power plants would be able to capture 

and store their emissions would manifest themselves partly 

through the price of emissions but would also affect the relative 

cost of coal and other forms of carbonbased energy.
ECONOMIC AND BUDGET ISSUE BRIEF

HOW POLICIES TO REDUCE GREENHOUSE GAS EMISSIONS COULD AFFECT EMPLOYMENT 5

Box 1.

Some Details About the Studies Surveyed in This Issue Brief

The studies surveyed in this issue brief all rely on 

what are termed generalequilibrium models to pro

ject the effects that adopting a policy to reduce green

house gas emissions would have on employment 

in individual industries and groups of industries that 

collectively span the entire economy. The studies 

nevertheless differ in a number of important respects, 

only some of which can be accounted for (or partially 

accounted for) by the scaling procedure that the 

Congressional Budget Office (CBO) used to make 

the studies’ results more comparable. 

The study by analysts at Resources for the Future 

(RFF) projects the economic effects of a tax of 

$10 per ton of carbon dioxide. The study divides 

the economy into 21 industries. It assumes that 

other countries do not impose their own emission

reduction programs and that the United States does 

not impose a tax on imports in proportion to the 

greenhouse gases emitted in their production 

(although it does impose one on imports of coal, oil, 

and natural gas). Thus, the tax on carbon dioxide 

puts emissionintensive producers in the United 

States at a disadvantage relative to their foreign com

petitors, leading to larger projected negative effects 

on employment in the United States. The study 

assumes that wages are sufficiently flexible to restore 

full employment for its mediumrun and longrun 

projections, which CBO scaled to obtain the pro

jected losses for 2015 and 2025, respectively. 

The study by analysts at the Brookings Institution 

projects the economic effects of reducing carbon 

dioxide emissions by 2050 to a level 83 percent lower 

than what occurred in 2005. In the study, caps on 

emissions apply only to carbon dioxide from fossil 

fuels, which represented 94 percent of U.S. emissions 

of carbon dioxide in 2007 and more than 80 percent 

of U.S. greenhouse gas emissions as measured in car

bon dioxide equivalents. The study divides the econ

omy into 12 industries. In the model used for the 

study, employment adjusts gradually to new policies, 

and physical capital cannot easily move between 

industries (which is an assumption similar to the one 

underlying the RFF study’s mediumrun projections). 

The Brookings study assumes that all other countries 

act to reduce emissions regardless of whether the 

United States does or not. Therefore, implementing 

an emissionreduction program in the United States 

would eliminate a competitive advantage held by 

emissionintensive U.S. firms. The study presents 

estimates for several scenarios; for this brief, CBO 

uses the estimates from a scenario that reduces emis

sions by 20 percent by 2020, 40 percent by 2030, 

and 83 percent by 2050. Those reductions are similar 

to the targets contained in H.R. 2454, the American 

Clean Energy and Security Act of 2009.

The CRA International study projects the effects of 

major provisions of H.R. 2454. Those include the 

phased reduction of greenhouse gas emissions to 

83 percent below 2005 levels by 2050, free alloca

tions of many of the emission allowances to indus

tries, the requirement that specified percentages of a 

baseline level of electricity be produced from renew

able resources, and allocations of allowances to spur 

investment in technologies to capture and store emis

sions. In reporting effects, the study divides the econ

omy into nine industries. It assumes that all countries 

satisfy their obligations under the Kyoto agreements, 

that other countries do not change their behavior 

when the United States implements its program, and 

that no border adjustments (import taxes or export 

subsidies in proportion to emissions embodied in 

traded goods) are imposed. The study uses a detailed 

model of the electricity industry. Rather than assum

ing that wages adjust gradually to restore full employ

ment, the study assumes that they adjust immediately 

to any policy change, but by only onehalf of the 

amount required to equate the supply of labor with 

demand, and that the remaining adjustment does not 

occur during the forecast period, which extends 

through 2050. As a result of that assumption, the 

study projects that, in 2050, total aggregate employ

ment remains 1.1 percent below the baseline amount 

for that year. That longterm reduction in aggregate 

employment is reflected in the study’s projections of 

changes in employment by industry.
6 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

are difficult to forecast with confidence. For example, 

industries’ abilities to adjust production processes to 

reduce the use of emissionintensive materials, parts, and 

other inputs are not well known, so forecasts of such 

behavior are difficult and uncertain. Moreover, the pace 

of development and cost of significant new technologies 

cannot be forecast with confidence. Examples include 

technologies for making use of alternative sources of 

energy that are less emissionintensive than those in com

mon use today, for reducing emissions from the use of 

current sources of energy, and for making production 

processes more energy efficient. Those uncertainties are 

compounded by the challenges of estimating the eco

nomic effects of a policy that would be implemented over 

the course of several decades. Furthermore, the pace of 

adjustment of the economy and employment to the 

changes in policy and technology is uncertain, and, as 

some studies indicate, complete adjustment could take 

many years.

The employment changes resulting from an emission

reduction program would occur in a context of ongoing 

changes in industries’ employment levels that are occur

ring for other reasons. The projected changes presented 

here are the changes relative to what employment would 

otherwise be in the year in question in the absence of the 

program—not relative to current employment. The two 

would be different for any industry in which employment 

is growing or shrinking for other reasons.

Two important characteristics of the employment projec

tions should be noted. First, employment varies substan

tially from industry to industry. For example, industries 

that produce fossil fuels, which would probably experi

ence large percentage reductions in employment, are 

much smaller than other sectors of the economy, such as 

services, which employ many more people. Conse

quently, the largest absolute changes in employment 

might occur in service industries and others that would 

have relatively small percentage changes in employment, 

rather than in industries directly involving coal, oil, and 

natural gas, which would have the largest percentage 

changes in employment (see Figure 1).

Second, one of the differences among the studies for 

which scaling cannot adjust is the assumed flexibility of 

the labor market. The RFF study anticipates that wages 

will adjust quickly enough that there will be full employ

ment in the medium and long terms. Consequently, its 

estimates for those time frames (which CBO scaled to 

produce the estimates for 2015 and 2025) show increases 

in employment in the electricitygenerating industry and 

in services other than transportation roughly offsetting 

the decreases in employment in other industries. Simi

larly, the Brookings study’s expectations about wages pro

duce estimates that show increases in employment in ser

vices roughly balancing out decreases in other industries 

in 2025, although not in 2015. The CRA International 

study assumes less flexibility, and as a result, it projects 

that the economy and employment would not fully 

adjust even by 2025 and that the losses in employment 

would be larger than the gains.

CBO’s views on the flexibility and responsiveness of 

wages are closer to those that are reflected in the studies 

by RFF and Brookings than to the views in the study pro

duced by CRA International. Generally, CBO believes 

that the economy is responsive and flexible over time and 

would gradually adapt to constraints on emissions. The 

increases in prices caused by an emissionreduction pro

gram would cause workers’ real wages to be lower than 

they would otherwise be, on average, but nearly all work

ers would choose to remain in the workforce and accept 

those wages. A small percentage might choose to work 

fewer hours or not at all, resulting in slightly lower total 

employment than would be the case in the absence of the 

program.

Carbon-Based Energy Production

A tax on emissions or a capandtrade program would sig

nificantly reduce the demand for fossil fuels such as coal 

and oil, and it would therefore similarly reduce employ

ment in the industries that mine and process those fuels. 

Such a policy could also affect employment by electric 

utilities, although the direction of that effect is unclear.

Carbon-Based Fuels. Of the industries that produce fossil 

fuels, the coal mining industry would probably see the 

largest percentage decline in employment because burn

ing coal produces more greenhouse gases per unit of 

energy than burning oil or natural gas does. Moreover, 

coal is widely used in generating electricity, and electric 

utilities have some ability to substitute other sources of 

energy for coal. A potential mitigating factor for the coal 

mining industry is the possible development of technolo

gies to capture and store emissions of coalfired power 

plants. 

Currently, under the industry definitions in the 

RFF study, the coal mining industry employs about 
ECONOMIC AND BUDGET ISSUE BRIEF

HOW POLICIES TO REDUCE GREENHOUSE GAS EMISSIONS COULD AFFECT EMPLOYMENT 7

100,000 people. According to the three studies that CBO 

reviewed, under an emissionreduction program, by 2015 

employment in the industry would decline by 10 percent 

to 18 percent relative to employment without such a pro

gram. Over the longer term, employment in the industry 

would decline even further. By 2025, it would fall by 

nearly 20 percent according to the Brookings study, by 

nearly 30 percent according to the RFF study, and by 

more than 35 percent according to the CRA Interna

tional study.

Employment in oil and gas extraction and natural gas 

utilities taken together as a group—currently totaling 

more than 500,000—would also be expected to decline 

as oil and natural gas became more expensive and the 

demand for them declined. As a percentage of the people 

employed, the likely effects are smaller, however, than the 

decline in coal mining. Because oil is widely traded on 

international markets, continued demand for it in other 

countries that did not implement emissionreduction 

programs would mitigate some of the effects of the 

decline in domestic demand. Because natural gas pro

duces smaller quantities of greenhouse gases than do coal 

and petroleum fuels, demand would probably shift from 

coal and oil to natural gas in some instances. For exam

ple, some electricity producers might switch from coal to 

natural gas as a fuel, thus offsetting some or all of the 

reduction in demand for natural gas that would otherwise 

occur. 

By the estimates from the Brookings study, employment 

in oil and gas extraction would decline by about 8 per

cent by 2015 and 16 percent by 2025 relative to what it 

would be otherwise. The estimates from the RFF study 

indicate that employment in oil extraction alone (that 

study includes gas extraction with gas utilities rather than 

with oil extraction) would decline by about 4 percent by 

2015 and 8 percent by 2025 relative to what it would be 

otherwise. In contrast, according to the CRA Interna

tional estimates, the decline would be only 1 percent for 

both years.

Employment in natural gas utilities would be essentially 

unchanged by 2015 or by 2025 in percentage terms, 

according to the Brookings study. The CRA International 

study indicates that such employment would increase by 

1 percent by 2015 and 2 percent by 2025. In contrast, 

the RFF study indicates that employment in gas utilities 

and gas extraction taken together would be lower by 

almost 10 percent by 2015 and by more than 25 percent 

by 2025 than what it otherwise would be—an outcome 

that differs from what would be expected to occur if 

demand shifted from coal to natural gas. 

The decline in demand for energy from fossil fuels would 

also be reflected in the petroleum and coal products 

(refining) industry, which currently employs roughly 

170,000 people. According to the RFF study, employ

ment in that industry would decline by about 9 percent 

by 2015 and 11 percent by 2025. The Brookings study 

projects smaller reductions—3 percent by 2015 and 

7 percent by 2025. CRA International projects a decline 

of 2 percent by 2015 and 3 percent by 2025. 

Electricity. The effect of an emissionreduction policy on 

employment in the electricity industry is unclear. Elec

tricity is produced from a variety of fuels that differ in the 

amount of carbon dioxide they generate. In 2007, about 

50 percent of electricity in the United States was gener

ated by coalfired plants and just over 20 percent by 

plants fueled by natural gas. Both fuels produce carbon 

dioxide, although natural gas produces much less than 

coal. Plants fueled by nuclear or water power or renew

able sources that do not produce significant amounts of 

greenhouse gas emissions accounted for about 25 percent 

of the electricity generated in 2007. Imposing a price on 

emissions of greenhouse gases would increase prices for 

electricity and reduce the total amount consumed. 

The RFF study concludes that an emissionreduction 

policy would cause about a 2 percent decline in electricity 

production by 2015 and about a 3 percent decline by 

2025, compared with what it would be otherwise. Pricing 

emissions would also cause generators of electricity to 

switch away from conventional coalfired plants to those 

fueled by natural gas and, eventually, toward coal and 

natural gas plants that capture and store their emissions, 

nuclear plants, or various renewable options such as wind 

or solar—technologies that produce low or no emissions. 

Accordingly, fewer workers would be employed in the 

conventional plants but more in plants that generate elec

tricity with lower emissions. If more labor hours were 

necessary to generate electricity using loweremission 

technologies, overall employment in generating electricity 

might increase. Those changes would also affect employ

ment in the portions of the construction industry that 

build new power plants, transmission lines, and local dis

tribution networks.
8 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Figure 1.

Projections of Changes in Employment by 2015 and 2025 Resulting from an 

Emission-Reduction Program

Percent

Source: Congressional Budget Office based on projected percentage changes in employment from Mun S. Ho, Richard Morgenstern, and

Jhih-Shyang Shih, Impact of Carbon Price Policies on U.S. Industry, Discussion Paper 08-37 (Washington, D.C.: Resources for the Future, 

November 2008); Warwick McKibbin and others, Consequences of Alternative U.S. Cap-and-Trade Policies: Controlling Both Emissions and 

Costs (Washington, D.C.: Brookings Institution, July 2009); and David Montgomery and others, Impact on the Economy of the American 

Clean Energy and Security Act of 2009 (H.R. 2454) (prepared by CRA International for the National Black Chamber of Commerce, May 

2009) and based on statistics about industry employment from the monthly Current Population Surveys of the Bureau of the Census.

Notes: The estimates are for changes relative to what employment would have been in the absence of the emission-reduction policy.

To improve comparability, the projections of all studies are scaled to reflect CBO’s projections of the market prices of emission allowances 

under H.R. 2454, the American Clean Energy and Security Act of 2009. The scaling procedure that CBO used does not adjust for all differences among the studies that might lessen the comparability of the projections. For example, even in instances in which two or more of the 

studies give projections for industries with the same or similar names, the industry definition in one study may not include precisely the 

same range of activities as that in another. The industry definitions in the Resources for the Future (RFF) study are based ultimately on the 

 

Services Other Than Transportation

Construction, Transportation, Other Manufacturing,

and Agriculture and Related Industries 

Electricity

Petroleum and Coal Products (Refining)

Oil and Gas Extraction and Gas Utilities

Coal mining 

Services Other Than Transportation

Construction, Transportation, Other Manufacturing,

and Agriculture and Related Industries 

Electricity

Petroleum and Coal Products (Refining)

Oil and Gas Extraction and Gas Utilities

Coal mining 

Services Other Than Transportation

Construction, Transportation, Other Manufacturing,

and Agriculture and Related Industries 

Electricity

Petroleum and Coal Products (Refining)

Oil and Gas Extraction and Gas Utilities

Coal mining 

-40 -30 -20 -10 0 10 20

a,b

a,b

a,b

a

a

a

RFF Study

Wages assumed to be

sufficiently flexible to restore

full employment in the medium

and long terms

Brookings Study

Wages assumed to be fully

flexible in the long term but

employment assumed to adjust

gradually

CRA International Study

Wages assumed to adjust by

one-half the amount required

for full employment

By 2015

By 2025
ECONOMIC AND BUDGET ISSUE BRIEF

HOW POLICIES TO REDUCE GREENHOUSE GAS EMISSIONS COULD AFFECT EMPLOYMENT 9

Thousands of Jobs

Notes (Continued): 

Standard Industrial Classification (SIC) system; those in the CRA International study are based on the North American Industry Classification System (NAICS). In general, broad industry definitions in the SIC system do not translate directly into broad definitions in NAICS. 

Moreover, scaling does not adjust for all differences in the studies’ assumptions.

a. The projected change shown is the employment-weighted average of the changes projected by the study for the individual industries contained 

in the industry group.

b. This category consists of all industries not listed elsewhere in the table, but the breakdown of industries differs significantly among the studies. 

The category includes the following industries from the RFF study: agriculture, forestry, fishing, and hunting; other minerals mining; construction; food, beverages, and tobacco; textiles; apparel and leather goods; chemicals, rubber, and plastics; wood and paper products; nonmetallic 

mineral products; primary metals; fabricated metal products; motor vehicles and other transportation equipment; electronic goods; other 

machinery, equipment, and manufactures; and transportation. From the Brookings study, it includes mining, durables, nondurables, agriculture, 

forestry, and transportation. From the CRA International study, it includes energy-intensive sector, motor vehicles, other manufacturing, agriculture, construction, and transportation. That last study also separately breaks out “alternate transport fuel,” for which it projects employment to 

increase by 2 percent by 2015 and 4 percent by 2025. Those projections are not included in the figure.

 

Services Other Than Transportation

Construction, Transportation, Other Manufacturing,

and Agriculture and Related Industries 

Electricity

Petroleum and Coal Products (Refining)

Oil and Gas Extraction and Gas Utilities

Coal Mining 

Services Other Than Transportation

Construction, Transportation, Other Manufacturing,

and Agriculture and Related Industries 

Electricity

Petroleum and Coal Products (Refining)

Oil and Gas Extraction and Gas Utilities

Coal Mining 

Services Other Than Transportation

Construction, Transportation, Other Manufacturing,

and Agriculture and Related Industries 

Electricity

Petroleum and Coal Products (Refining)

Oil and Gas Extraction and Gas Utilities

Coal Mining 

-1,200 -1,000 -800 -600 -400 -200 0 200 400 600

b

b

b

RFF Study

Wages assumed to be

sufficiently flexible to restore

full employment in the medium

and long terms

Brookings Study

Wages assumed to be fully

flexible in the long term but

employment assumed to adjust

gradually

CRA International Study

Wages assumed to adjust by

one-half the amount required

for full employment

By 2015

By 2025
10 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

The studies that CBO reviewed are in conflict concerning 

the net effect on employment in the electricity industry; 

two indicate an increase in employment and the other, a 

decline. The RFF study indicates that employment 

would increase by about 13 percent by 2015 and 10 per

cent by 2025 compared with what would be the case 

without an emissionreduction program. Similarly, the 

CRA International study projects that employment in the 

industry would increase by roughly 17 percent by each of 

those years. In contrast, the Brookings study projects a 

decline in employment of about 3 percent by 2015 and 

11 percent by 2025. That industry currently employs 

about 740,000 people.

Other Industries Most Likely to Lose Employment

In addition to industries that produce fossil fuels, a wide 

variety of other industries would also see lower employ

ment under an emissionreduction policy than in its 

absence. For industries that use relatively large amounts 

of carbonbased fuels either directly or indirectly through 

other inputs, the cost of producing their products would 

increase, and demand for those products would corre

spondingly decrease. Similarly, industries (such as the 

automobile industry) whose products use fossil fuels 

could also see shifts in demand, with corresponding 

changes in employment. Other than energy producers, 

industries that would probably have lower employment 

in 2025 as a result of an emissionreduction program cur

rently employ more than 30 million people, so a small 

percentage decline in employment would, in total, affect 

many more people than the larger percentage declines in 

the energy sector. 

Mining, construction, and the industries that produce 

metals, nonmetallic mineral products (such as glass), 

chemicals, and transportation services—all of which use 

relatively large amounts of energy directly or indirectly—

would probably experience reductions in employment 

relative to what would occur in the absence of policies to 

reduce emissions. Production costs would increase in 

those industries, and demand for their products would 

decline as those higher costs were reflected in higher 

prices. Reduced demand for products would lead to 

reduced demand for labor. According to the RFF study’s 

estimates, employment in mining (other than coal, oil, 

and gas) would decline by almost 3 percent by 2025. 

Employment in industries that produce primary metals 

(such as steel and aluminum) would decline by 2 percent. 

Employment in construction and in the industries 

that produce chemicals, rubber, and plastics; nonmetallic 

mineral products; transportation services; other machin

ery, equipment, and manufactures; textiles; and fabri

cated metals would in each case decline by about 

1 percent.

Of the industries on that list, several stand out because 

they are so much larger than the others, and, conse

quently, their likely employment declines would be much 

larger in absolute terms. For example, the reduction in 

employment in the construction industry implied by 

RFF’s estimates would be about 67,000 jobs by 2015 and 

almost 110,000 by 2025. Similarly, the estimated reduc

tion in employment for transportation services would be 

about 48,000 by 2015 and 62,000 by 2025. 

In addition to energyintensive industries, industries that 

manufacture products that require significant amounts of 

energy to use would also be affected. Higher fuel prices 

would dampen the demand for gasoline. They would also 

dampen the demand for automobiles that get low gas 

mileage, so the composition of employment in the auto

mobile industry would shift toward the production of 

morefuelefficient cars.

The industry classifications used in the Brookings and 

CRA International studies are different enough from 

those of the RFF study that it is not possible to make 

comparisons of projections for the industries just dis

cussed. Nevertheless, the conclusions are broadly similar 

in that emissionreduction policies would decrease 

employment in energyintensive industries.

Industries Likely to Gain Employment

For a period of time, job losses from the industries that 

shrink would lower overall employment in the economy 

and raise the unemployment rate (if the shrinking was 

not so slow that reductions in employment occurred 

through attrition). Eventually, however, most laidoff 

workers would find employment in other industries 

whose products are less emissionintensive and produce 

fewer emissions when used and in industries that manu

facture equipment for the production of energy using 

lowemission technologies (such as nuclear, solar, and 

wind power). The hiring of those workers would be 

spurred by a shift in demand toward the products of 

those industries and away from the products of the more 

emissionintensive industries. Eventually, the economy 

would return to full employment. Average wages would 

be lower than what would otherwise prevail because the 

higher cost of energy would reduce the productivity of 
ECONOMIC AND BUDGET ISSUE BRIEF

HOW POLICIES TO REDUCE GREENHOUSE GAS EMISSIONS COULD AFFECT EMPLOYMENT 11

the economy. As a result, the size of the labor force and 

total employment would lessen slightly because some 

workers would choose to leave the labor force, finding 

other uses of their time (such as engaging in leisure activ

ities or raising a family) to be more valuable to them.

The length of time required for all of the changes to play 

out would depend on a number of factors. One would be 

the ability of firms and workers to foresee and act quickly 

on the changes in prices and to implement the changes 

that would be required in their output, training, and 

other activities. Another factor would be the extent to 

which shrinking industries are concentrated in small 

communities in which other opportunities for employ

ment are limited, requiring laidoff workers to relocate in 

order to find new employment. The U.S. economy has 

adjusted fairly quickly to past changes in the economic 

environment, including the changes brought about by 

the rapid development of computer and information 

technologies, which destroyed many jobs but created 

many others, and the increase in international trade, 

which shifted many manufacturing jobs out of the coun

try but probably contributed to the growth of service 

jobs.

In the three studies CBO analyzed, the increases in 

employment in industries that are less emissionintensive 

or whose products produce fewer emissions when used 

are not as readily observable as are the decreases in 

employment in industries that are more emission

intensive. One reason is that the industry classifications 

used in the studies coincide better with industries that 

would lose employment than with industries that would 

be expected to gain. All of the studies model separately 

the various industries involved in the production of fossil 

fuels—industries likely to lose employment. However, 

they do not model separately the production of more

fuelefficient vehicles and the production of lessfuel

efficient vehicles. The increase in employment in the for

mer is offset to a greater or lesser degree by a decline in 

employment in the latter in the combined aggregate of 

motor vehicle production that is modeled. Similarly, 

employment in some parts of the construction industry 

might be expected to increase as consumers sought to 

improve the energy efficiency of their homes or as the 

producers of electric power built new wind or solar gener

ation facilities, but the RFF and CRA studies model the 

construction industry as a whole and project that its 

employment would decline. 

The service sector of the U.S. economy (excluding trans

portation) employs more than 100 million people, or 

roughly 70 percent of the labor force. As emissionreduc

tion policies increased the price of emissionintensive 

goods and transportation services, the relative prices of 

other services (which tend to have low emissions) would 

fall, leading to a shift in demand toward those services 

and a consequent expansion of the sector. Because that 

sector is large, modest percentage increases in it would 

generate many jobs. The RFF study’s results imply that 

employment in services other than transportation would 

increase by about 0.3 percent by 2015 and between 0.4 

percent and 0.5 percent by 2025. Those very small per

centage changes would nevertheless translate to more 

than 300,000 and almost 500,000 jobs, respectively. The 

Brookings study projects that employment in the service 

sector would increase by 0.1 percent by 2015 and by 

0.2 percent by 2025. In contrast, the CRA International 

study projects that employment in that sector would 

decline. However, that result probably stems from 

assumptions that lead the study’s model to project that, 

by 2025, significant numbers of workers who lost their 

job in emissionintensive industries would not yet have 

found new employment in other industries. CBO’s views 

about the flexibility and responsiveness of wages align 

more closely with those of the RFF and Brookings studies 

than with those of the CRA study. 

This brief was prepared by Bruce Arnold, with contri

butions from Molly Dahl. It and other CBO publica

tions are available on the agency’s Web site 

(www.cbo.gov).

Douglas W. Elmendorf 

Director