How EPA Lost $1.22 Trillion In Its Waxman-Markey Analysis
April 22nd, 2009Posted by: Roger Pielke, Jr.
You can have a lot of fun playing games with assumptions. For instance, EPA managed to lose $1.22 trillion in the costs of the Waxman-Markey cap and trade bill to 2019. Here is how.
The budget put forward by President Obama contained a set of assumptions for GDP growth that would result from his administrations efforts to restart the economy. For 2010-2019 the average GDP growth rate is projected to be about 3.3% (for exact numbers see Table S-8 in the President’s Budget in PDF). By contrast, the EPA’s analysis of the Waxman-Markey Bill uses a GDP growth rate of 2.5% per year (see page 14 in the EPA analysis here in PDF).
Starting with the GDP figures in the President’s Budget and applying the different GDP growth rates leads to a difference in the size of the economy of $1.22 trillion between the President’s Budget projections and the EPA analysis of Waxman-Markey. Not a small number. (The 2010 GDP values start at different values as well, which could add another $400 billion to the total.)
A lower GDP means fewer emissions. It also means that needed efficiency gains are smaller to meet the same targets. For instance the EPA analysis assumes that the US will see energy intensity improve at a rate faster than the 2.5% per year GDP growth. To maintain the same energy demand figures this rate would have to increase to above 3.3% per year. Both of the values stretch credulity, but that is for another time. The point is that in addition to the “lost” GDP growth, there would be considerable extra costs for emissions reduction (determining how much would require re-running the EPA analysis, but it is safe to say that it would be a lot).
How much is $1.22 trillion? About $11,000 per U.S. household (assuming 115 million households). This number obly gets larger in the out years if GDP growth rates exceed the 2.5% assumed by EPA. Adding in the costs of addition emissions reductions would make this number considerably larger.
There are plenty of other hidden and acknowledged assumptions in the EPA analysis as well.
April 22nd, 2009 at 2:28 am
Is 2.5% too low? Or is 3.3% too high?
Which scenario is better for implementing policy to control emissions?
A larger economy with more emissions to reduce, more satisfied voters, and more resources to invest?
Or a smaller economy with fewer emissions, economically stressed voters, and limited financial flexibility?
April 22nd, 2009 at 5:18 am
[...] WSJ. And don
April 22nd, 2009 at 5:25 am
[...] And don’t forget that the biggest factor in the EPA’s cost analysis is simple math: By using a lower forecast for GDP than the Obama administration, the EPA figures there will be fewer emissions to cut in the first [...]
April 22nd, 2009 at 5:51 am
[...] And don’t forget that the biggest factor in the EPA’s cost analysis is simple math: By using a lower forecast for GDP than the Obama administration, the EPA figures there will be fewer emissions to cut in the first [...]
April 22nd, 2009 at 12:43 pm
The idea that emissions will inevitably increase with economic activity is perhaps too simplistic. What if technology allows us to telecommute more? What if we go for geothermal heating in a big way? What if we switch en masse to led lighting? I’d guess about 50% reduction or more from those. Compare the CRT monitor with flat screen monitors which use about one tenth of the watts. That’s what technological progress does. I’m inclined to think that it all follows the same curve that John Teirney outlines in the New York Times:
http://www.nytimes.com/2009/04/21/science/earth/21tier.html?_r=1
Makes more sense to me than a straight line. Nature is usually curvy and self-limiting.
April 23rd, 2009 at 5:45 am
jasg,
You are unwittingly participating in an econometric fallacy in which the problem under analysis is ‘assumed’ out of existence by the basic assumptions.
Geo-Thermal? Geothermal is only feasible in a very small area and will never be more than a ‘niche’ energy source. We haven’t ‘gone to geo-thermal in a big way’ because of lack of will, but because it simply isn’t practical, especially within the time frame of the next 10 years. Same for LED lighting (as I understand it there may be effective LED light bulbs in 3-5 years – which I will switch too en masse as soon as practical ones are available), but this isn’t soon enough to materially effect energy use/emmissions in the short term. Even if we did, I seriously doubt that it would result in a 50% emissions drop. For instance if we stopped driving every car, plane, & train in the US it would reduce emissions by about 1/3.
April 23rd, 2009 at 7:27 am
[...] were some of those assumptions? For starters, as University of Colorado professor Roger Pielke notes, the Obama EPA used GDP growth estimates far below those used by the Obama Office of Management and [...]
April 23rd, 2009 at 7:51 am
[...] were some of those assumptions? For starters, as University of Colorado professor Roger Pielke notes, the Obama EPA used GDP growth estimates far below those used by the Obama Office of Management and [...]
April 23rd, 2009 at 8:34 am
Bill Marsh
It’s not unwitting, I know the pitfalls of assumption led conclusions but in my defense but I did write geothermal heating, ie via heat pumps. AFAIK that is viable nearly everywhere and it saves 50% of home electricity. Led lighting would reduce total energy consumption by 15% to 20%. I telecommute and if we collectively spend 30% of energy (measured by CO2) on transport then I save about 29%. Imagine a virtual office if you will. Could we manage to reduce commuting to once or twice a week? Optimistic perhaps but it’s doable I think.
April 23rd, 2009 at 11:30 am
[...] What were some of those assumptions? For starters, as University of Colorado professor Roger Pielke notes, the Obama EPA used GDP growth estimates far below those used by the Obama Office of Management and [...]
April 23rd, 2009 at 2:20 pm
[...] were some of those assumptions? For starters, as University of Colorado professor Roger Pielke notes, the Obama EPA used GDP growth estimates far below those used by the Obama Office of Management and [...]
April 23rd, 2009 at 3:39 pm
[...] were some of those assumptions? For starters, as University of Colorado professor Roger Pielke notes, the Obama EPA used GDP growth estimates far below those used by the Obama Office of Management and [...]
April 26th, 2009 at 10:18 am
[...] Roger Pielke, Jr. reports on the trillion dollar plus reduction in the GDP which is in the EPA analysis. This is a huge deal. [...]
May 1st, 2009 at 10:02 am
[...] of Colorado professor Roger Pielke crunches the numbers on what the smaller growth rate would mean for the average American: Starting with the GDP figures [...]
May 1st, 2009 at 6:00 pm
[...] of Colorado professor Roger Pielke crunches the numbers on what the smaller growth rate would mean for the average American: Starting with the GDP figures [...]
May 4th, 2009 at 3:09 pm
[...] of Colorado professor Roger Pielke crunches the numbers on what the smaller growth rate would mean for the average American: Starting with the GDP figures [...]