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Friday, July 23, 2010

Cost of Climate/Energy Legislation, Part III

It was good news that the leadership in the U.S. Senate announced it was dropping its push for climate change legislation yesterday. But as the Obama White House made clear, this is not a dead issue.

That’s why it is critical to keep in mind the costs. As noted in previous blog entires, in response to U.S. Senators John Kerry (D-MA) and Joseph Lieberman (I-CT) proposing “The American Power Act of 2010” (also known as Kerry-Lieberman), the American Council for Capital Formation and the Small Business & Entrepreneurship Council (SBE Council) published an economic analysis (done by Science Applications International Corporation) of the bill.

It is worth noting the following from this study as to what legislation mandating sharp reductions in CO2 emissions would do to U.S. industrial production:

“Industrial production (manufacturing, mining and electric utilities) begins to decline immediately in 2013, relative to the baseline forecast, under the Kerry-Lieberman bill. In 2030, U.S. industrial output levels are reduced by between 4.9% and 5.8% under the low and high cost scenarios. Among the hardest hit industries are aluminum (down almost 40%), steel production (down 18 %) and petroleum refining and glass production (down by almost 13%) compared to the baseline forecast. A hallmark of economic downturns and recessions is a slowdown in the growth rate or an absolute decline in the level of industrial output. Clearly, the negative impact on industrial output of the Kerry-Lieberman bill would make it harder to strengthen the U.S. economy and restore strong job growth.”

This kind of legislation, imposing a massive, costly regulatory system, would inflict serious economic damage. Did the Senate leadership realize this finally? Well, Senate Majority Leader Harry Reid (D-NV) spoke of “not having enough votes,” not that he had come to realize what a bad idea this was.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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