The Economics of Climate Change Policy

1. The Economics of Climate Change Policy Prepared for: CEO Climate Change Task Force Meeting American Public Power Association Washington, D.C. December 3, 2007 Washington, D.C. www.accf.org Tel: 202-293-5811 Mthorning@accf.org By: Dr. Margo Thorning, Ph.D. Senior Vice President and Chief Economist American Council for Capital Formation

2. Trends in Global Energy Use and Carbon Emissions: 2007-2030 • Primary energy demand projected to increase by 1.8 % annually. • Fossil fuels projected to be dominant energy source • Renewable energy share projected to increase from 7% to 8% percent • Carbon emissions projected to increase by 1.8% annually • Developing countries account for over three quarters of the CO2 increase • China’s CO2 emissions exceeded the U.S. in 2006

3. U.S. Economic and Energy Trends • Producing a dollar of Gross Domestic Product requires 33¢ of energy use • GHG emissions fell by 1.5% in 2006 and energy intensity declined by 4.2% • Population will rise by 22% over the next 25 years • Substantial increases in investment will be needed to meet rising demand: electricity alone will require $412 billion over next 25 years • Proposals to reduce GHGs will impact U.S. economic growth and employment.

4. Greenhouse Gas Emissions: Under EIA Baseline Forecast and S. 2191 Targets (Million Metric Tons CO2 Equivalent)

5. Per Capita Greenhouse Gas Emissions: Under EIA Baseline Forecast and S. 2191 Targets (Metric Tons CO2 Equivalent per Person)

6. U.S. Per Capita Emissions: Effort Required to Meet Lieberman / Warner Targets

7. Economic Impacts of Lieberman/Warner Bill (S. 2191) on the U.S. Economy (compared to the baseline forecast with no mandatory carbon caps) • Price of Permit to Emit Carbon: $35 to $55 per ton of CO2 in 2015, rising to $60 to $120 by 2030 • Gross Domestic Product decreases by: • 1.0% to 1.6% by 2015 • 2.0% to 2.5% by 2050 • U.S. Employment falls: • 1.2 to 2.3 million net job loss by 2015 • 1.5 to 3.4 million net job loss by 2020 • Natural Gas Prices Rise by 15% to 20% through 2030 • Electricity Prices Rise by: • 36% to 65% by 2015 • 80% to 125% by 2050 Source: Anne E. Smith, CRAI, testimony before U.S. Senate Committee on Environment and Public Works, Nov. 8, 2007.

8. Greenhouse Gas Emissions in the European Union: Gap Between Projections* and Kyoto Targets in 2010 Target * Projections assume existing measures already in place. Source: European Environmental Agency, November 2007.

9. Greenhouse Gas Emissions Associated with Existing and New Investment in 2001(Million tons of Carbon per $Billion of GDP) Source: Promoting a Positive Climate for Investment, Economic Growth and Greenhouse Gas Reductions, W. David Montgomery and Sugandha Tuladhar (see www.iccfglobal.org)

10. U.S. Capital Cost Recovery for Smart Meters Compares Poorly with Our Trading Partners(Percent of Nominal Capital Cost Recovered After 5 Years) Source: “International Comparison of Depreciation Rules and Tax Rates for Selected Energy Investments,” prepared for the American Council for Capital Formation by Ernst & Young LLP, May 2007. For full report, please see www.accf.org.

11. Practical Strategies for Reducing Global Greenhouse Gas Growth Use cost / benefit analysis before adopting policies Reduce cost of U.S. energy investment through tax code improvement and incentives for non profits Remove barriers to developing world’s access to more energy and cleaner technology by promoting economic freedom and market reforms Increase R&D for new technologies to reduce energy intensity, capture and store carbon, and develop new energy sources Promote nuclear power for electricity Promote truly global solutions and consider expanding the Asia Pacific Partnership on Development with its focus on economic growth and technology transfer to other major emitters