Greenhouse gas controls bad business

Like many before them and no doubt many to come after them, Maine officials are currently working on a plan to regulate in-state greenhouse gas emissions. While their intentions are no doubt good, their efforts are misguided and would harm the state’s economy if implemented.

The move to limit greenhouse gas emissions – which come from many sources including factories, households, utilities, motor vehicles and livestock – grows out of a belief on the part of many that such gases contribute to global warming. While that issue is the subject of debate, what is hardly debatable is the fact that the plan now

under consideration in Maine would be a setback to economic progress.

The state of Maine has endorsed climate policy legislation modeled on a plan called the New England Governor-East Canadian Premiers’ agreement. This proposal would cap greenhouse gas emissions at 1990 levels by 2010, reduce the cap to 10 percent below 1990 levels by 2020, and then reduce emissions to between 75 percent to 85 percent below 2000 levels by about 2050. These are ambitious goals to say the least. And they would have adverse economic consequences on households, workers and state budget receipts if implemented, according to a study from the economic consulting firm Charles River Associates.

The economic problems stem from the fact that under present technology, the only way to reduce near-term emissions is to curtail economic activity. And that is what hurts.

If Maine and other Northeastern states (Delaware, Connecticut, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont) adopt the New England governors’ proposal, there would be significant economic losses. Some industrial production in Maine, as well as the other Northeastern states, would relocate to other states where no emission limits exist.

A region-wide carbon trading program – in effect a tax – would ensure that the marginal cost of abatement would be equalized among the nine Northeastern states, but the cost of buying a permit would be high: $244 per ton of carbon emitted in 2010, rising to $288 per ton by 2020. Consumers in the nine states would pay a “tax” of 61 cents in 2010 and 72 cents per gallon of gasoline in 2020 due to the requirement that businesses must buy

the right to emit carbon.

As a result of these proposed policies, the Charles River Associates study found that Maine’s household annual consumption would fall by $2,303 in 2010 and by $2,039 in 2020. In addition, state budget receipts would decline by $71 million in 2010. The poor and elderly would bear much harsher burdens under these emission-reduction policies than would higher-income and younger households because they spend more of their budgets on energy.

The poorest households would devote an additional 3.8 percent of their total expenditures on energy goods, while the wealthiest households would only dedicate an additional 1.9 percent. Making the same computation for the elderly (over 65 years old) and nonelderly, this policy would lead to the elderly paying out an additional 3.7 percent of total expenditures on energy while the nonelderly would increase these expenditures

by less at 2.6 percent. Other key economic indicators, including employment, are also negatively impacted.

This hardly seems like a formula for betterment of our society, in my view.

Those who want to reduce greenhouse gas emissions often overlook the fact that reducing emission growth requires a global solution involving the developing as well as the developed world. Energy use and economic growth go hand-in-hand, so helping the developing world improve access to cleaner, more abundant energy should be our focus. Near-term greenhouse gas emission reductions in the developed countries should not take priority over maintaining the strong economic growth necessary to keeping the United States one of the key engines for global economic growth.

Establishing a new national emissions registry and tradable credit system for greenhouse gas emissions would impede, not promote, U.S. progress in reducing emissions intensity. That is why U.S. climate change policies should continue to strive to reduce energy intensity and to develop new cost-effective technologies for alternative energy production and conservation, while at the same time encouraging the spread of economic freedom in the developing world.

The people of Maine and the rest of the nation can best contribute to a better world by maintaining a healthy economy. Plans now being considered to regulate greenhouse gas emissions would be a step in the wrong direction because they lessen our ability to offer that help.

Dr. Margo Thorning is senior vice president and chief economist of the American Council for Capital Formation and a Senior Visiting Fellow at The Maine Heritage Policy Center.