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Wednesday, July 21, 2010

Cost of Kerry-Lieberman Energy Legislation

U.S. Senators John Kerry (D-MA) and Joseph Lieberman (I-CT) have proposed “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) today published an economic analysis of the bill. The study was done by Science Applications International Corporation.

At the center of the bill is the imposition of a cap-and-trade emissions regulatory scheme, with the following schedule of greenhouse gas emission (mainly, CO2) levels: 95.25% of 2005 emissions levels in 2013; 83% of 2005 emissions levels in 2020; 58% of 2005 levels in 2030; and 17% of 2005 levels in 2050.

The ACCF/SBE Council study estimates the following costs/economic losses resulting from Kerry-Lieberman:

• The annual loss in GDP could reach $37.1 billion in 2020, and $417.7 billion in 2030. (All dollars in 2009 dollars.) Over the 18-year period analyzed, the cumulative loss in real GDP could hit $2.1 trillion.

• On a per capita basis, the annual decline in GDP could reach $1,115 in 2030.

• In terms of employment, the loss in jobs could hit 500,000 in 2025, and 1.9 million as of 2030.

• Industrial output could fall by as much as $157 billion in 2020, reaching as high as $526 billion by 2030.

• In 2030, retail gasoline prices could jump by 18.1%, residential electricity prices by 42%, industrial electricity prices by 62.3%, residential natural gas prices by 51.2%, and industrial natural gas prices by 77%. It is important to note that electric utility coal prices could rise by 209.9% in 2020, 335% by 2025, and 529.4% in 2030.

Let’s put this in the context of the current state of small business, the economy and jobs.

On the entrepreneurship front, for example, the number of incorporated self-employed – after rising in 2006, 2007 and 2008, for example – declined in 2009 by six percent. And the number of unincorporated self-employed has fallen for three straight years. The 2009 level was down by 2.5 percent versus 2008, and by seven percent compared to 2006. In addition, a Challenger, Gray & Christmas survey out this week noted that start-up activity in the first half of 2010 was the lowest in over two decades.

This dearth of entrepreneurship has translated into lost jobs. According to the household survey, which better captures start up and small business activity, the number of employed actually fell by 301,000 in June, and in May and June, the economy lost a total of 336,000 jobs. At the same time, the civilian labor force declined, at an even faster rate than employment. The civilian labor force fell in June by 652,000, and in May and June, the decline totaled 974,000.

In this environment, merely considering such costly energy legislation creates additional uncertainty about the future for entrepreneurs and investors. And then there are the very real costs of imposing this kind of legislation, as estimated in this study. Increased electricity costs and prices at the pump translate into higher costs for smaller firms.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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