President-elect Barack Obama reiterated his intention to implement a cap and trade system during a brief videotaped address to the Governor’s Global Climate Summit in Beverly Hills today.

The summit was organized by California Gov. Arnold Schwarzenegger and chaired by Kansas Gov. Kathleen Sebelius.

It was Obama’s first speech on global warming since his election, but it may have sent a chill through some of those worried about the faltering economy.

In the address, he repeated his desire to create a system that limits carbon dioxide emissions and forces companies to pay for the right to emit carbon dioxide. Revenue derived from the scheme would be invested in the development of alternative energy sources.

Such a system, he said, would “help us transform our industries and steer our country out of this economic crisis by generating five million new green jobs that pay well and can't be outsourced."

Some economists and free enterprise advocates, though, said implementing a cap and trade system would have catastrophic consequences on the economy, both nationally and in Kansas. And, rather than solve the economic crisis, they say it would only deepen it.

“A cap on carbon dioxide emissions is a cap on economic growth,” said Alan Cobb, executive director of the Kansas Chapter of Americans for Prosperity.

He said the prospect of implementing such a system “should be of concern to everyone, especially now.”

Dr. Margo Thorning, chief economist for the American Council for Capital Formation, told Kansas Liberty that the impact would be even more severe than was indicated in a study commissioned by the group this summer.

The study used the National Energy Modeling System (NEMS), which also is used by the U.S. Energy Information Administration for energy forecasting and policy analysis. The study estimated that if a cap and trade system, such as that proposed by U.S. Senators Joe Lieberman and John Warner -- which is less stringent than the plan Obama is advancing -- were implemented, the results would be devastating.  In Kansas alone, the study said, the results would look like this:

• Kansas would lose between 11,093 and 16,687 jobs by 2020, and between 20,709 and 36,884 jobs by 2030.

• Kansans would see disposable household income reduced by $947 to $3,069 per year by 2020, and by $3,994 to $7,283 by 2030.

• The price of gasoline in Kansas would increase between 73 percent and 140 percent by 2030, while electricity prices would increase by 124% to 153% during the same span.

• High energy prices, fewer jobs, and loss of industrial output would reduce the state gross product by between $1.3 and $1.8 billion per year by 2020 and $4.8 and $5.7 billion by 2030.

• Kansas manufacturers would suffer output losses of between 3.5 and 5.2 percent by 2020. 

• A cap and trade system would be particularly brutal for low-income individuals and families. By 2020, a family earning an income of $13,412 would spend between 21 and 24 percent of its income on energy.

• Because of higher energy costs, Kansas schools, universities and hospitals would experience a 31 to 39 percent increase in expenditures by 2020, and a 107 to 146 percent increase in expenditures by 2030.

The Lieberman-Warner plan was based on a scheme which called for a lowering of carbon dioxide emissions to a level 63 percent below the 2005 level by 2050.

Obama’s proposal calls for even greater reductions of carbon dioxide emissions. It aims for a level 80 percent below the 2005 level in the same span.

“Because the President-elect calls for stricter targets, it would be reasonable to expect the impacts would be even more severe than was estimated based on Lieberman-Warner,” Dr. Thorning said.

A cap and trade system would have a particularly devastating impact on electricity producers, the Lieberman-Warner study said.

“As the largest emitter of GHGs (Greenhouse Gas Emissions), the primary impact would fall on the electric sector,” the study reported.

Obama already has threatened to "bankrupt" new producers of lower-cost energy if they use carbon-based fuels, such as coal. The Lieberman-Warner plan apparently would have a similar effect.

“Lieberman-Warner would result in the electric industry shutting down most carbon-based generation and/or using expensive, as yet unproven technology, to capture and store CO2," the study said. "To meet the stringent goals of Lieberman-Warner, the electric industry would also have to substitute high cost technologies, such as biomass and wind, for conventional generation.”

The targets may be unrealistic based on the experience of others. The nations of the European Union have had Kyoto-based targets in place for years. Almost all of them have failed to meet the targets even once, despite attaching a significant tax burden to fuels. The price of an unleaded gallon of low-octane gasoline in France during much of the last year has hovered in the $9 range. The lowest grade of heating oil costs approximately $6 a gallon.

Projected economic hardship is the conventional rationale for missing the targets. For the last five years, most of them have been reducing "greenhouse gasses" more slowly than the United States has under President George W. Bush's leadership.

-Phil LaCerte

Resources:

• The Obama plan: http://my.barackobama.com/page/content/newenergy
• The American Council for Capital Formation study of Lieberman-Warner: http://www.accf.org/media/docs/nam/Kansas.pdf

The week in Review