Congress is already considering several bills that would impose costs on carbon emissions (used as shorthand for all greenhouse gases). On Nov. 1, a Senate panel for the first time voted for mandatory limits on emissions and the creation of a trading scheme to allow businesses flexibility in implementing carbon caps.
Still, complying with the new system will cost businesses covered by the cap – mainly heavy industry and utilities -- hundred of billions of dollars, which will be presumably be passed on to consumers and voters..
For this reason critics complain it is a hidden tax. It is also the reason it is more politically feasible than a carbon tax, which many economists favor for its relative simplicity and easier enforcement. The trading scheme allows better targeting for actual reductions, one reason it is favored by environmentalists.
The Lieberman-Warner bill calls for a 3% reduction in carbon emissions every year, to meet its 65% reduction, by 2050, target. That is more than twice the 1.3% carbon reduction the U.S. economy achieved last year – the best record to date.
With a 7% increase in the U.S. population expected between 2005 and 2012 the mandatory caps would require a threefold improvement in emission reductions, says Margo Thorning, chief economist of the American Council of Capital Formation, a broad-based business advocacy group. She worries that meeting this demand could reduce GDP by one percent to two percent by 2012, which could translate into 750,000 fewer jobs.
But there are other economic arguments in favor. “My sense is that industry badly wants regulation here - most business people have figured out that there is going to be regulations one way or another and they are really just crying ‘please just tell us what it is going to be – we’ll make decisions, we’ll handle it, but please just give us the basic rules,’ “ says Levinson, who notes the uncertainty has created an “enormous backlog of investment” especially in the power sector.
That’s a concern for Jim Rogers, the CEO of Duke Energy, who has been a leading power sector advocate for regulatory clarity in the form of “a national, economy-wide greenhouse gas mandatory program as soon as possible.”
“Eighty percent is the right target – that’s very aggressive but it has to be, it’s not a matter of discretionary thinking, it’s simply mandatory given climatic science,” argues Congressman Jay Inslee (D-Washington), who is co-chair of Sen. Clinton’s energy advisory committee.