Climate Consensus Obscures Obama, McCain Differences

Economy-Wide Impacts Projected For Decades

There is also a debate on the general economic impact these policies could have.

“In the short-run we are embarking on a fairly modest experiment that gets us the easy reductions in carbon emissions at pretty low cost; in the long run, we are looking at a complete transformation of our energy economy,” says Metcalf, who co-authored a widely-cited MIT study of the Warner-Liberman bill, which many expect could provide the core of any future legislation.

But this and others studies are built on a set of assumptions that may produce widely different outcomes over several decades.

The MIT study, for one, predicts a GDP reduction of 0.5 percent to 1.0 percent of GDP in 2015, three years after the law would go into effect.

“That’s not negligible, but it’s not a lot,” argues Metcalf, adding that the US economy will have grown to $17 trillion by that time. “The bottom line is that the costs of climate mitigation can easily be handled by our robust and diversified economy.”

Other studies predict more dire consequences. According to one by consultancy CRA International, the measures will slash 1.9 percent from the GDP in 2015.

The trouble is that there are many uncertainties that could affect the evolution of any cap-and-trade program. For that reason, the Environmental Protection Agency study of the Senate bill analyzed 10 different scenarios to evaluate a range of assumptions and key parameters.

The uncertainties are reflected in the EPA's GDP-reduction estimates that range from 0.9 percent to 3.8 percent in 2030 and between 2.4 percent and 6.9 percent in 2050.

A critical uncertainty is the development and adoption of new technology — including next generation nuclear plants, which are strongly favored by McCain — and how quickly large emitters, like China and India, join reduction efforts.

Ultimate Price Tag 

This is where auction revenues could help, to boost the government's basic R&D expenditures for clean technologies — now about $3.5 billion — which could then be shared worldwide.

The MIT study envisions raising $85 billion in the first year of a full auction — at $10 a ton. But prices are forecasted to rise from $50 per ton in 2015 to $200 per ton by 2050.

That's a lot of money for the government and many are concerned the funds could get diverted to plug other deficits.  

Obama has laid out ambitious programs about how this money would be spent, including committing $150 billion over 10 years to develop and deploy clean technologies. 

"The amount of money that is going be needed for new technology — because most of that is not developed — is really fairly high, I mean we are in the trillions, not the billions,” says William Kovacs, vice president of environment, technology, and regulatory affairs at the US Chamber of Commerce.

Obama also envisions earmarking funds to help low-income customers absorb higher energy prices and to retrain workers for a new 'green' economy.

"By 2050, if we stick to our guns with the kind of cap-and-trade bill that we are talking about, nothing will be untouched by this," Metcalf says.