The Lieberman-Warner Cap and Trade Bill: Quick Summary and Analysis
May, 31st 2008
The United States Senate will soon begin debate on America's Climate Security Act of 2007, popularly referred to as the Lieberman-Warner bill after its chief sponsors, Senators Joseph Lieberman (I-CT) and John Warner (R-VA).
The legislation ostensibly is intended to cut U.S. industrial emissions of greenhouse gases in an effort to reduce the risk of catastrophic global warming. Senator Lieberman has estimated the bill would reduce overall U.S. greenhouse gas emissions by up to 63% by 2050.1 The policies the legislation would impose, however, have little hope of meeting this target and would likely have little impact on the climate even if it did.
Lieberman-Warner would, however, significantly slow the U.S. economy and increase the cost of energy and consumer products. It also would disrupt international commerce.
America's Climate Security Act of 2007 (S. 2191) was introduced in the Senate on October 18, 2007 by Senators Joseph Lieberman (I-CT) and John Warner (R-VA). The bill states as its purpose: "[P]rompt, decisive action is critical, since global warming pollutants can persist in the atmosphere for more than a century."
Congress is demanding "prompt, decisive action" even though there is still disagreement among scientists about the level, cause and consequences of global warming. On May 19, 2008, for example, Dr. Arthur Robinson of the Oregon Institute of Science and Medicine announced that more than 31,000 scientists had signed a petition rejecting the theory of human-caused global warming. A significant number of scientists, climatologists and meteorologists have expressed doubt about the danger of global warming and whether or not humans are having a significant impact for the worse on the climate. Others, including renowned scientists, have suggested that there are approaches to deal with global warming that would not necessitate slowing the economy.
S. 2191 was approved by the Senate Environmental and Public Works Committee on December 5, 2007 in an 11-8 vote. On May 21, a substitute bill incorporating America's Climate Security Act, S. 3036, was introduced by Senator Barbara Boxer (D-CA). Senate debate on that bill is expected to begin June 2.
The Act would fine any person who violates any part of the law $25,000 per day for each violation and make it easier for the government to take citizens to court for not complying with new global warming laws.
The legislation would require the Administrator of the Environmental Protection Agency (EPA) to establish:
(1) A federal greenhouse gas (GHG) registry to monitor compliance with the Act; (2) A GHG emission allowance transfer system for covered facilities; (3) An international reserve allowance program.
The bill would create a national "cap and trade" policy for greenhouse gas emissions. Companies would be allocated right-to-emit credits based on how much greenhouse gas they currently emit.
The proposal -- frequently referred to as a cap-and-trade plan -- would establish an emissions trading system that would permit companies that emit fewer greenhouse gases than they are allowed to sell the excess portion to companies that exceed their allowances. The Act's sponsors estimate the bill would reduce U.S. greenhouse gas emissions by up to 63% by 2050. The initial limits between the years 2005 and 2012 would cap emissions at 5,200 million metric tons of CO2 equivalent to estimated levels during 2005. Between 2012 and 2020, emissions would be further reduced two percent per year, resulting in a 15% reduction below 2005 levels.
Lieberman-Warner would establish:
(1) A domestic offset program, allowing regulated facilities to meet up to 15% of their compliance obligation in any given year with allowances generated through domestic offset projects certified by the EPA. They could meet their emissions limits, provided they receive approval from the EPA, by purchasing credits on the international emission trading market or by borrowing from credits they would normally receive in future years.
(2) The Bonus Allowance Account, established using 4 percent of all emission allowances for calendar years 2012 through 2035, that would be used to reward firms that sequester their carbon emissions in geological formations.
(3) The Carbon Market Efficiency Board to monitor and report on the national GHG emission market.
Within the Treasury Department, it would establish:
(4) The Energy Assistance Fund to provide funds to the low-income home energy assistance program and to the rural energy assistance program;
(5) The Climate Change Worker Training Fund to provide job training to any workers displaced by this Act and assistance to workers in need of training or re-training;
(6) The Adaptation Fund to help various fish, wildlife, plants and associated ecological resources in adapting to and surviving the effects of climate change;
(7) The Climate Change and National Security Council to submit annual reports to the President, Senate and House of Representatives the extent to which other countries are reducing greenhouse emissions through mandatory programs; the threat of climate change to sensitive populations, national resources and political stability; and potentially destabilizing impacts of climate change on national security;
(8) The Climate Change Credit Corporation to auction emission allowances.
International Reserve Allowance Program
The Act would require the President to establish an interagency group to determine whether foreign countries have addressed GHG reduction. Before being allowed to trade, any U.S. importer of covered goods must submit approved international allowances. With a few exceptions, failure to make a CO2 emissions declaration (in writing to the administrator of U.S. Customs and Border Protection) for each import would result in the import being barred from entry.
Futility of Lieberman-Warner
The sharp GHG reduction requirements are dependent on significant technological innovations -- innovations that simply can't be mandated.
Even if they could be, Lieberman-Warner would have virtually no effect on the climate, according to Dr. Patrick Michaels, a former president of the American Association of State Climatologists and now senior fellow in environmental studies at the Cato Institute: "Say the U.S. actually does what the law says, though no one knows how to. The result is an additional 0.013 degrees (C) of 'prevented' warming," says Michaels.
According to Michaels, such a small change is too small to measure, as natural temperature variation from year-to-year is many times higher.2
Furthermore, China has surpassed the United States as the largest emitter of greenhouse gases and its emissions growth is currently several times larger than the emissions growth of the United States. The emissions of other developing nations, such as India, are also growing at a rate much higher than those of the United States.3
Meeting the goals of the Lieberman-Warner cap-and-trade plan would impose enormous financial strain on Americans, according to four independent econometric studies.
A study commissioned by the National Association of Manufacturers (NAM) and the American Council for Capital Formation (ACCF) projects that by 2014 retail gasoline prices would increase between 13 and 50 percent; residential electricity prices would rise between 13 and 14 percent; and natural gas prices would increase between 18 and 21 percent. The study, "Analysis of the Lieberman-Warner Climate Security Act (S.2191) using the National Energy Modeling System (NEMS/ACCF/NAM)," also projects that the U.S. economy will suffer employment losses of 850,000 jobs by 2014 and between 1.2 and over 1.8 million more lost jobs in 2020.4
Moreover, households stand to lose between $1,010 and $2,779 of income each year by 2014. The economy would suffer Gross Domestic Product (GDP) losses of between $135 billion and $269 billion by 2014.5 Estimates are based upon 2007 baseline energy prices and produced a range of estimated price increases depending on the future availability of energy technologies and various socio-political constraints.
The Massachusetts Institute of Technology's Joint Program on the Science and Policy of Global Change projects that, if Lieberman-Warner becomes law, in 2015 gasoline prices would increase 29 percent, electricity prices would jump 55 percent, and natural gas prices would be pushed up 15 percent. The MIT study, titled an "Assessment of U.S. Cap-and-Trade Proposals," is based on 2005 baseline energy prices and accounts for subsidies for carbon capture and storage (CCS), as well as 15 percent of emissions covered by the trading mechanism.6
An assessment by the Nicholas Institute for Environmental Policy Solutions at Duke University estimates that in 2015 gasoline prices would cost up to six percent more, electricity would be roughly 18 percent more expensive and natural gas prices would increase about 15 percent.7 Moreover, the study projects economy-wide GDP losses of $75 billion in 2015 and $245 billion in 2030.8 The 2007 study, "The Lieberman-Warner America's Climate Security Act: A Preliminary Assessment of Potential Economic Impacts," considers credit trading as well as domestic offsets in its projections.
Finally, the Heritage Foundation's Center for Data Analysis projects that Lieberman-Warner would cripple the future economic health of the United States. GDP losses are estimated to be between $45.7 billion and nearly $170 billion in 2015 (2000 dollars)9 - totaling as much as $4.8 trillion of lost GDP by 2030.10 In addition, Heritage analysts estimate annual employment drops could be as high as 901,000 as early as 2016 and will exceed 500,000 per year before 2030.11 By 2030, skyrocketing energy prices will mean the average household will spend an extra $608 for heating oil, $647 for electricity and $303 for natural gas per year from projected 2012 levels.12
Regardless of which one of these studies is closer to the mark, the Lieberman-Warner proposal would impose costs unacceptable to the American people. Public support is presumably critical to any government program, but especially one that is intended to govern economic activity over the next 42 years.
A recent survey conducted by Wilson Research Strategies for the National Center for Public Policy Research found that 65% of the public is unwilling to spend more for gasoline to reduce greenhouse gas emissions. Another 13% say they are unwilling to spend more than 5% more for their gasoline. That's less than the amount projected by the Duke University study, which provided the most optimistic forecast of the Lieberman-Warner proposal's effect on gas prices of the studies noted above.
The poll also found that 71% of Americans are unwilling to pay any more for their electricity to reduce greenhouse gas emissions, with an additional 16% opposed to paying more than 12% more. This amount, again, falls under the most optimistic projections of electricity price increases from the studies noted earlier.
When gasoline and electricity prices are taken together, 90% of Americans reject the Lieberman-Warner plan's costs - even the low-range projection.13
Imagine if, in 1966, then President Lyndon B. Johnson had tried to determine what the emissions levels of America should be 42 years into the future. Even if he had gotten together the best and brightest minds of the day, it is unlikely that his advisers would have come up with data that could have anticipated either our energy needs or our standard of living today. Although some lawmakers may be reluctant to admit it, policymakers today are similarly handicapped when it comes to predicting our future needs, technologies and circumstances.
Lieberman-Warner would embark Americans on an unprecedented and large-scale manipulation of the national economy that would depress economic growth and have both short- and long-term unintended consequences. Lieberman-Warner's "cap-and-trade" could hamstring Americans for decades.