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CBO’s good news re Climate Legislation is significantly understated

June 23rd, 2009 · 7 Comments

The Congressional Budget Office has come out with an evaluation that, as the Washington Post reported,

Climate-change legislation would cost the average household $175 a year by 2020, according to the Congressional Budget Office, far below the figure commonly used by GOP critics of the House bill.

The CBO said yesterday that the poorest 20 percent of American households would actually receive a $40 benefit in 2020 from the legislation, which would establish a cap-and-trade system to limit greenhouse gas emissions, while the richest 20 percent of households would see a net cost of $245 a year.

Supporters of action, of the American Clean Energy and Security Act, are trumpeting this CBO report, highlighting that it proves that it will only cost “a postage stamp a day“.

“Americans know that building a clean energy economy has real value, and this CBO analysis proves it,” said Rep. Markey. “Low-income American families will see a $40 benefit from using more wind and solar energy and less foreign oil. And for the cost of about a postage stamp a day, all American families will see a return on their investment as our nation breaks our dependence on foreign oil, cuts dangerous carbon pollution and creates millions of new clean energy jobs that can’t be shipped overseas.”

These advocates are doing a disfavor to the American public. And to the cause of serious action to reduce climate change impacts. In fact, the CBO report is almost certainly overstating the actual costs because it, quite explicitly, is understating the benefits of action.

Very simply, if anything, the CBO scoring is overly negative since it doesn’t consider systems-of-systems implications.

  • Job creation and, therefore, lowered governmental services demand: not in the calculation. (Trading imported oil for jobs building up an electrified rail network, for example …)
  • Economic implications of climate change — and the avoided costs due to reduced pollution: not included.
  • Health care benefits (to federal budget and otherwise) due to reduced fossil fuel pollution: not included.
  • Increased productivity due to better health and better working conditions: not included.
  • The analysis didn’t even include the bill’s strong energy efficiency provisions, which are direct cost savers.

From the House Energy and Commerce Committee:

CBO specifically notes that this figure “does not include the economic benefits and other benefits of the reduction in GHG [greenhouse gas] emissions and the associated slowing of climate change.”  In particular, CBO did not analyze the energy efficiency improvements and resulting savings in energy costs that will result from the ACES Act’s investment of over $60 billion in the next ten years in energy efficiency and required improvements in energy efficiency.  One outside group, the American Council for an Energy Efficient Economy (ACEEE), has estimated that the benefits of the energy efficiency provisions in ACES, which generally were not included in the CBO estimate, will save consumers $22 billion in 2020 alone, with cumulative savings of $3,900 per household by 2030.

The $175 figure is, if anything, pessimistic.

In fact, CBO probably has the sign wrong — it shouldn’t be a negative (in terms of cost) but positive (in terms of returned value for investment).

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7 responses so far ↓

  • 1 asdfasdfasdf // Jun 24, 2009 at 1:32 pm

    […] CBO pessimistically reported that it could cost American households as much as a postage stamp, per ….  This, of course, was trumpted as good news, even as CBO understated the benefits that would […]

  • 2 President Obama makes a strong, public call for a yes vote on ACES // Jun 25, 2009 at 10:36 pm

    […] The President’s speech writers are falling into a wrong framing. The CBO study, which the postage stamp a day refers to, is very pessimistic (some say “conservative”). It does not include, for example, the energy conservation […]

  • 3 Acting on Climate = Benefits, not costs // Jun 30, 2009 at 2:15 pm

    […] people say “it will only cost X” (”just a postage stamp a day”). There is celebratory discussion of CBO and EPA numbers showing very low costs, seemingly useful to counter R false claims of $3000+ / year costs. Truly, there are others who are […]

  • 4 EPA fails to think in four quadrants: Valuing Climate Legislation // Oct 24, 2009 at 11:28 pm

    […] it comes to climate legislation, quite simply, the CBO and, in this case, the EPA are solely operating in the first box: the costs of enacting the piece […]

  • 5 Senator Alexander “believes an inconvenient reality …” // Oct 26, 2009 at 1:42 pm

    […] change an even larger example. In your comments, Senator, you expressed dissatisfaction with CBO and EPA analysis of climate legislation. The CBO and EPA analyses explicitly do not consider such externalities. You discussed, as well, […]

  • 6 Nobel Prize Winner’s Must Read … with a significant omission // Apr 11, 2010 at 5:16 am

    […] high quality in their own way, the CBO (and many other institutions) operates with a set of constraints that lead them to do stovepiped….  Very simply, if anything, the CBO scoring of the Waxman-Markety American Clean Energy & […]

  • 7 Climate Sanity and the necessity of Fully-Burdened Cost and Benefit Analysis // Aug 19, 2012 at 5:24 am

    […] Office (CBO) analysis of the Waxman-Markey “American Clean Energy and Security (ACES) Act,” climate advocates gleefully announced that contended that ACES would achieve its objects ‘for the …. While clearly aimed at diffusing the notion that climate policy would be prohibitively costly, the […]