Despite the assurance from the chairman of the Senate Energy and Natural Resources Committee that no climate change legislation would be forthcoming from his committee this year, some on Capitol Hill appear eager for another legislative battle over implementing mandatory controls on carbon dioxide. One Senate Democrat requested that the Energy Information Administration (EIA) analyze elements of a proposal floated by the non-governmental National Commission on Energy Policy (NCEP) in 2004, and the results, released last week, are not good for the U.S. economy.

Fact: According to EIA’s analysis, energy prices would increase dramatically over time and the United States would suffer a significant loss in GDP.

Impacts on Consumer Spending and GDP

EIA:

The higher delivered energy prices in the Cap-Trade cases lowers real output for the economy. They reduce energy consumption, but also indirectly reduce real consumer spending (due to lower purchasing power) for other goods and services. The lower aggregate demand for goods and services in the Cap-Trade cases results in lower real GDP relative to the reference case (Figure 29). Relative to the reference case, total discounted real GDP over the 2010 to 2030 time period ranges from $244 billion to $800 billion (0.10 to 0.32 percent) lower in the Cap-Trade cases. Over the same time period, discounted real consumer spending is between $248 billion and $772 billion (0.15 to 0.46 percent) lower than in the reference case in the Cap-Trade cases. (p.35)Higher Coal and Motor Gasoline Prices 

EIA: 

For example, delivered coal prices, including the costs of holding GHG emission permits, are between 51.9 percent and 156.8 percent higher in 2020 and between 57.4 percent and 305.6 percent higher in 2030. Motor gasoline prices are $0.06 per gallon to $0.19 per gallon (3.0 percent to 9.3 percent) higher in 2020 and $0.08 per gallon to $0.41 per gallon (3.7 percent to 18.9 percent) higher in 2030. (p. vii) 

Reduced Coal Production

EIA:

Relative to the reference case, coal generation is projected to be between 4.8 percent and 27.2 percent lower in 2020 and between 15.8 percent and 64.5 percent lower in 2030. In the two less stringent program cases, coal generation still grows between 2004 and 2030, though at a slower rate than in the reference case. In the two most stringent program cases, coal generation in 2030 is expected to be between 9.5 and 39.2 percent below the 2004 level. New coal plants with carbon capture and sequestration equipment are added in these two cases, but their generation is not large enough to offset the impacts of coal plant retirements and lower generation from the remaining coal plants. (p. vii-viii)

Impacts on Consumer Price Index (CPI) for Energy and All-Urban CPI

EIA:

Relative to the reference case, the consumer price index for energy (CPI-Energy) in 2020 ranges from 4.6 percent to 11.7 higher in the Cap-Trade cases (Figure 27). By 2030, this difference grows to between 5.9 percent and 25.2 percent higher than in the reference case. These higher energy prices in the Cap-Trade cases contribute to increases in the All-Urban Consumer Price Index (CPI), a measure of aggregate consumer prices in the economy. In the Cap-Trade cases, the CPI is between 0.6 percent and 2.6 percent higher than in the reference case in 2030. (p. 33-34)