Climate Change Legislation: Don’t Believe the Opponents’ Numbers

Posted by: John Carey on November 28, 2007

The U.S. Senate is now working on a bill that would require cuts in greenhouse gas emissions, and the opposition is pulling out all the stops to block its passage. Check out TV spot created by the U.S. Chamber of Commerce (www.uschamber.com). It first shows a family bundled up in its freezing house. The father then cooks his egg over candles, and jogs to work in his business suit, joining other men running down a traffic-free road. If the legislation, known as the Warner-Lieberman bill, is passed, the ad warns, Americans won’t be able to afford heating their homes or driving their cars.

Putting aside the fact that the U.S. actually would be a healthier place if more people walked, bicycled, or took public transportation to work, the ads raise a deeper question.

Just how much would implementing the bill cost? To quote from the Chamber, "If this bill becomes law, 3.4 million Americans will lose their jobs. American GDP will decline by $1 trillion. And American consumers will be forced to pay as much as $6 trillion to cope with carbon constraints."

Sounds pretty ominous. But where did those numbers come from? The Chamber cites the Senate testimony of Anne Smith, vice president of CRA International, a consulting firm (www.crai.com/bio.asp?profid=6538).

But where did Smith get those numbers? That's what Senator Lieberman (D-CT), co-sponsor of the bill, wanted to know. After all, the answers that come from the economic models CRA is known for depend heavily upon a whole host of assumptions. If the model assumes, for instance, that new technology won't be developed quickly, then the costs of reducing greenhouse gas emissions would be much higher than if the model expects more rapid innovation.

So Lieberman sent a letter to Smith, asking for the assumptions and details behind the numbers. Sorry, she said, can't do it. "I have received your request for documentation of the MRN-NEEM model runs used in my testimony...and I will be happy to comply," she wrote. "This will take a little time, however, since CRA has not yet prepared a comprehensive report on [the bill] and therefore I have nothing 'off the shelf' that I can send."

Hmm. Opponents of the bill are citing these numbers as established fact. Yet they can't even explain how those numbers were generated?

Of course, no one can accurately predict the costs of a bill like this, which would affect all parts of the economy with its emissions limits. But the lesson of past regulation is that the eventual costs are almost always less than the affected industries claimed they would be -- sometimes far less. And even in the current debate, there are plenty of more believable numbers. Take this new report from Citigroup (www.incr.com/NETCOMMUNITY/Document.Doc?id=163). It looked at just one sector -- autos -- which would have to increase gas mileage in order to reduce carbon dioxide emissions. The conclusion: far from costing jobs and putting automakers out of business, higher fuel economy standards "surprisingly—[would generate] some growth in variable profits for most automakers."

The lesson: take the claims of huge costs with a large helping of salt.

Reader Comments

David Montgomery

November 30, 2007 4:22 PM

I am co-head of CRA International’s Energy and Environment Practice and I am appalled by your inaccurate reporting of the request from Senator Lieberman to my colleague Dr. Anne Smith, and her response to that request. This is a blatant example of distorted reporting through deletions and extractions.

You wrote, “So Lieberman sent a letter to Smith, asking for the assumptions and details behind the numbers. Sorry, she said, can't do it.” This is a complete distortion of the truth, as I am sure you are fully aware. The correspondence below demonstrates that Dr. Smith’s response was in fact, “All the information you have requested is available… I expect to send my response by COB Monday, December 3.” Further, it should be noted that documentation of the model used to generate all of the results is available on-line at http://www.crai.com/pubs/pub_7748.pdf, and was cited on the first page of her original written testimony.

Below is the FULL AND COMPLETE text of the correspondence between Senator Lieberman and Dr. Smith (as opposed to the selective citation geared towards your bias), which makes it abundantly clear that the posting completely misrepresented the nature of Dr. Smith’s response.

“November 16, 2007

Dear Dr. Smith,

At the Senate Environment and Public Works Committee hearing on November 8, 2007, you presented results from economic modeling simulations that CRA International conducted with respect to a version of S.2191, America’s Climate Security Act of 2007.

So that I and other members of the Committee can understand fully how the results in your analyses were reached and their reliability, I am writing to ask that you provide me and my colleagues with your complete report, including the entire methodology and analyses for each of the different scenarios you considered (whether or not the scenarios or results were discussed in your testimony).

For each scenario considered, please provide all assumptions and variables that affected the predicted costs of reducing global warming emissions, such as the costs and performance characteristics of various energy resources, prices and availability of offsets, and constraints on deployment of lower carbon energy resources such as carbon capture and storage (CCS). In particular, it is important to understand what assumptions were made in each scenario regarding the incentives that would be made available under S.2191, including but not limited to the incentives that would support CCS, other low carbon and no carbon technologies, and energy efficiency standards, including both direct incentives under S.2191 and the indirect incentives that would result from the market forces created by the bill. In addition, please provide for each scenario all assumptions made regarding the economic benefits to be realized under S.2191. I assume that you have all of the information relating to the analyses in a form that can be transmitted to me and my colleagues without delay, and I look forward to your prompt response.”

Dr. Smith’s response:

“November 21, 2007

Dear Senator:

I have received your request for documentation of the MRN-NEEM model runs used in my testimony of November 8, 2007 on S.2191 and I will be happy to comply. This will take a little time, however, since CRA has not yet prepared a comprehensive report on S.2191 and therefore I have nothing “off the shelf” that I can send. (I had to assemble the information used in my testimony, drawing from a disparate variety of raw data files, in only a couple of days prior to the deadline for its submission.) All the information you have requested is available, but we will need to assemble it into a comprehensible form that responds to your specific questions. I expect to send my response by COB Monday, December 3.

Thank you very much for your request.”

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BusinessWeek correspondents John Carey and Mark Scott, cover the green scene, keeping on top of the business aspects of energy, the environment and climate change, as well as the technologies, policies, markets and people that are shaping how the earth's resources will be used in the century ahead.

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