Coming Up ACES...Almost

On June 26, the House passed the American Clean Energy and Security (ACES) Act (aka Waxman-Markey) by a vote of 219 to 212. ACES has come under fire from both the right and the left. Some environmental groups, including Greenpeace, oppose the bill because it does not go far enough. (While they have a point, I support the bill because it appears to be the best we're going to get and could spur better legislation in the future.)

The right has meanwhile responded with, "AARGH!!! THIS BILL IS GOING TO KILL THE AMERICAN ECONOMY!!!! APPLE PIE WILL NEVER TASTE GOOD AGAIN!!!"

Well, they're wrong. But let's look at their claims and take them apart one by one:

This bill will cost American families exorbitant sums of money. The CBO estimates that the average American household will have to pay an extra $175 per year by 2020 in direct costs, or about 0.2% of post-tax income. The EPA estimates it will cost $1100 per year by 2050. Even if you claim that those numbers would be higher, it's important to remember that Americans will be making and spending more by then anyways. ($164,348 per year in 2050)

It's important to note that the costs borne by households vary because of progressive subsidies and varying usages. The poorest fifth would actually receive a net $40, while the richest 20% would pay $245 in 2020. Costs also vary by state in ways that might affect Senate votes:

This bill will make manufacturing in the United States more expensive. Companies will outsource. First of all, it doesn't seem like companies are too thrilled to employ Americans in manufacturing in the first place. It's easy to make this claim and then blame all future outsourcing on ACES, though they might have moved even if ACES had not been passed.

More importantly, the consequent goal should not be to avoid adopting stringent environmental regulations in the United States. It should be to make foreign countries adopt more stringent environmental regulations. This will ameliorate environmental problems and level the economic playing field. Obama has an opportunity to do just that at Copenhagen. China and India, presumably the countries that has the right-wingers most concerned, have an incentive to do so: they will be hit hard by global warming.

Global warming is expected to reduce global GDP by only 5% anyways. GDP should not be our main concern. Nate Silver shows how 81 countries, accounting for 2.8 billion people, could be wiped off the face of the earth and the global economy would only suffer a 5% hit. These countries mostly lie in sub-Saharan Africa or the tropics, incidentally the same places that would suffer the most from global warming.

This bill will increase prices, reducing consumption and thus production. Yeah, well, that's the point. Currently, we produce too much greenhouse gas pollution. We do this because the cost of emitting is external to the company doing the emitting. The company accrues all the benefits of producing thingamajigs but the cost of the resulting pollution is borne by everybody. By internalizing these costs, i.e. making the company bear these costs, a more economically efficient amount of pollution will be produced. Cap-and-trade is an ingenious, market-based solution to a classic market failure.

Now, the bill moves to the Senate, where I'm hoping it will be improved. But that's like hoping that a tornado will come along and clean my apartment.