Costs and Benefits of Climate Change Legislation

October 14, 2009
10:25 AM
“As the Senate continues to consider ways to deal with the global environmental problem of climate change, much of the discussion centers around the overall costs and benefits of such a program, and how the costs and benefits will be distributed throughout our economy.  Addressing the issue of climate change will require a radical transformation of our energy sector, so this Committee will continue to take a great interest in this topic in the months ahead. 
Our last hearing on climate change examined different policy options at our disposal to contain both the long-term costs and the short-term price volatility of an economy-wide program to reduce greenhouse gas emissions. As a follow-on to that discussion, in today’s hearing we will receive testimony on the various economic models and analyses of the American Clean Energy Security Act, or ACES, that was passed by the House of Representatives this past June. 
“While no one can say for certain what the future holds, scientific and economic models can be used as tools to approximate reality and help us understand how the environment, or the economy, may react to policies we enact. Models can be very useful tools for estimating what a particular program may cost, showing how particular goals may be best achieved, and revealing where the economy may be most sensitive to the choices we make.  They are imperfect tools, however, and models have often been used or manipulated to make a pre-determined point and show favorable or unfavorable results for any given policy.
Over the course of our discussions on climate change legislation, this has been particularly true.  Interest groups and stakeholders have circled Capitol Hill with various analyses, some showing that cap-and-trade legislation will wreck the economy and provide nothing but costs, others showing only the benefits of job creation and new industry.
In the case of cap-and-trade programs and climate legislation, we can use real-world experiences alongside model analysis to keep us grounded in reality.  For example, the cap-and-trade system for sulfur dioxide set up by the 1990 Clean Air Act Amendments was an unprecedented environmental success in combating acid rain, and cost only about a quarter of the price that economic models were projecting. The greenhouse gas emissions trading program in Europe has shown that emissions trading can be successful at reducing emissions without having a disastrous effect on the economy.  While it is true that the European Emissions Trading program experienced significant volatility in its initial, experimental phase, they have learned from their trial period and made important improvements to their system. We should keep these experiences in mind as we consider projections for the future under cap-and-trade.
Today the witnesses will explain the strengths and weaknesses of the different models that have been used to analyze the ACES legislation, and what they collectively may tell us about the design of climate legislation.”
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