Modeling the Economics of Climate Change

May 20, 2008
11:11 AM

Chairman Bingaman gave the following statement on recent reports analyzing the energy and economic impacts of climate change legislation.

“Today we will hear testimony on analyses of global warming legislation to learn about the economic and energy impacts of climate policy and how to understand the capabilities and restrictions of economic models.

“Over the past several years, this Committee has held many hearings, workshops and briefings to better understand the economic and environmental impacts of climate legislation, specifically on its impacts to the energy sector.  Last year, the Energy Information Administration and others testified before this Committee on draft legislation that would become the Bingaman-Specter climate bill.  Since that time, several other climate bills have been introduced and many of them have been modeled, not only by the EIA and Environmental Protection Agency, but also by various stakeholders and interest groups. 
“Debates on climate legislation -- and energy policy in general -- have often focused heavily on analyses and predictions.  On the extremes, models have been used to show that legislation will have massive disruptions to the economy and cause widespread unemployment.  They have also been used to show that legislation will be free to society and a net-benefit to the U.S. economy.
“Given this wide disparity of findings, it can be difficult to navigate the space in between and understand what the true impacts of legislation will be.  We are faced with the question:  how can reasonable people and institutions analyze the same policy and find completely incompatible results about its impacts.  This hearing will attempt to learn more about the broader issues of what models can and cannot tell us about the impacts of policy and what assumptions can be used that will influence the findings of those models.
“A broader question that this Committee also needs to focus on is how energy models can be helpful to create a roadmap to transform our energy infrastructure into a low-carbon economy.  If we are to legitimately prepare an energy road-map for a low-carbon economy, we will need to know how much generation needs to be built and where that generation will come from.  Many of the models can give us an indication of what is presumed to be least cost. 
“Although the EIA and the EPA and others have done modeling of various climate change proposals in the last year, the most recent modeling has been of the Lieberman-Warner Climate Security Act, which was reported from the Environment Committee in December.  It is my understanding that a substitute for that bill is being developed and that that substitute will be what is considered on the Senate floor in June.  Obviously, that substitute has not been the subject of modeling as yet.
“Nevertheless, I believe it is valuable for us to understand: First, the extent to which modeling can reliably inform our judgment about what to do. Second, the assumptions built into the various models about the availability of resources and the speed of technology development and proliferation.  And third, the factors which most significantly affect the outcomes from the models.  I thank the witnesses for being here to help us understand these complex issues.”
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