Download IFA Presentation on Cap and Trade Issues

“Cap and Trade” or “Cap and TAX”:
The Economic Impact of the Greenhouse Gas
Regulations on Franchised Businesses
2 July 2009
Highly Regulatory Approach
 Likely drag
on longterm US
Economic
Growth
Charles River Associates
Study
 Business users and consumers will face higher energy costs
 Higher energy production and transportation costs are
expected to lead to increased costs of other goods and
services throughout the economy.
 “As the costs of goods and services rise, household
disposable income and household consumption would fall.”
Charles River Associates
Study
 Cap and trade will cause more investment in costly forms
of renewable energy, directing funding away from
investments with greater potential to enhance
productivity
 The economy will grow more slowly and job growth
expected to decline.
 “Overall, the economy would be expected to grow more
slowly, leading to substantial differences in disposable
income and personal consumption.”
Cost of Carbon Allowances
 Obama Administration’s FY 2010 Budget Proposal curbs
carbon emissions by cutting use of conventional energy.
As the cap tightens with time, the cost of reducing
emissions becomes more expensive and as a result, the
cost of a carbon allowance increases.
 In 2015, carbon allowance is estimated to be $29/ metric
ton of carbon dioxide.
 By 2020, the allowance cost goes to $66/metric ton.
 By 2030, the allowance cost could reach $116/metric ton of
carbon dioxide.
Job Losses
 Initial net job loss of 800,000 in 2015
 Net job losses projected to more than double by 2020 to
1.9 million and continue to mount to a net loss of
approximately 3.2 million total jobs by 2025 from
baseline levels
 While all regions of the country would be adversely
impacted, the Southeast, Oklahoma, Texas, and California
would be disproportionately affected
Disparate Regional Impacts
Energy Costs
 The cost of energy paid for business users and consumers
projected to increase, because of substitution away from less
costly fuels.
 Natural gas demand, primarily for electricity generation, is
projected to increase over coal.
 Motor fuel costs are projected to increase as allowances
would need to be purchased for the emissions associated
with the use of motor fuels.
 Electricity costs increase by 27% (3.6 cents per kWh) relative
to baseline level in 2020, rising by 44% (5.8 cents per kWh) in
2025.
Household Purchasing
Power
 Projected impacts on household purchasing power would be
severe and follow a pattern similar to employment impacts.
 Per household purchasing power is estimated to decline by
$1,020 in 2015,
 By $1,381 in 2020
 By 2030 the average American household’s annual
purchasing power is estimated to diminish by
approximately $2,127.
Investment
 Aggregate U.S. investment is projected to drop by 1.3% below
baseline level in 2015
 but then is projected to increase over the 2020 – 2030 timeframe as
required investments in lower emitting GHG technologies and energy
efficiency improvements are put in place in order to comply with ever
more stringent carbon caps.
 By 2030, investment is estimated to be 5.6% above baseline level.
 The increasingly stringent carbon caps would be expected to
redirect capital from higher to lower productive uses, for example,
by forcing premature retirement and abandonment of conventional
energy technologies and sources, deferring productivity enhancing
investments across a large swath of the economy.
 This investment shift would be expected to have a
disproportionately large adverse impact on future productivity
growth.
Overall Economic Activity
 By 2025, GDP, a commonly used measure of total
economic activity, is estimated to be roughly 0.7% ($150
billon) below the baseline level driven principally through
declining consumption.
 Commercial transportation services, electric generation and
agriculture would be among the disproportionately affected
economic sectors.
 In 2030, GDP is estimated to be roughly 0.2% ($39 billion)
below the baseline level.
 GDP decline is expected to be even more severe reaching
1.3% by the year 2040.
IFA Response
 IFA is a Steering Committee Member of the
Coalition for Affordable American Energy (CAAE)
 IFA Key Vote letter to US House (June 25, 2009)
 “The IFA supports efforts to reduce global greenhouse gas
emissions, but we believe that the solution must not
unilaterally impose sharply higher costs on U.S. business
consumers of energy.”
 IFA grassroots planned in advance of Senate action