The Price to You for Modest Climate Action

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The fate of climate legislation in Washington has largely been bound up in the fear that putting a price on carbon will also levy a heavy cost on middle-class families. Your monthly energy tab and gas bill will go up, politicians warn, as major industries tasked with cleaning up their smoke stacks pass the added costs straight down to consumers.

“I think there’s a fairly strong finding that people want clean energy legislation, they want climate legislation, they want legislation that deals with this problem and gives them a more secure and safe planet for their children and grandchildren,” said Nat Keohane, the director of economic policy and analysis with the Environmental Defense Fund. “It’s much harder to get good data on what are they willing to pay.”

The Environmental Protection Agency this week at least offered an estimate of what people may have to pay. Now you can ask yourself: Is modest climate legislation worth an extra $79 to $146 a year to you?

Or, as the Environmental Defense Fund is putting it: How about $3 to $5 per person, per month?

Those numbers derive from a newly released economic analysis of the potential impact of the American Power Act, the cap-and-trade climate bill proposed in the Senate by Democrat John Kerry and Independent Joe Lieberman.

In the absence of new policies, the EPA estimates that we have a 1 percent chance of keeping global warming below the 2 degrees Celsius goal set by the international community, by the year 2100. The probability that temperatures would rise by then above pre-industrial levels by as much as 4 degrees Celsius is 32 percent.

With the passage of the American Power Act — in conjunction with assumed policies adopted by other G8 countries — the probability of staying below the 2-degree threshold increases to 75 percent.

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In exchange for this, the EPA predicts a “relatively modest impact on U.S. consumers.” The $79 to $146 figure, the annual average across the lifetime of a phased-in energy program through 2050, is modeled on a number of factors: the increased cost of energy with a price on carbon; the increased efficiency of items that consume energy; the behavioral decisions people will make as a result of both of these factors; as well as the impacts on wages and the revenue from emissions allowances that will be returned to households.

The EPA admittedly makes no attempt to quantify the benefits of the legislation (or, conversely, the costs of continuing with business as usual).

The report doesn’t calculate, for instance, “the value to households of living in a world in which we still have coral reefs,” Keohane said, “in which we have ecosystems that look largely as they do today, in which we haven’t lost 30 percent of our species, in which there aren’t massive heat waves. All of those things have value, but it’s very, very hard to put a good dollar value on those.”

That means the EPA assessment isn’t exactly a cost-benefit analysis; the $79 to $146 range is simply a cost to households, not a net result of weighing the expenses of the legislation against its positive intended benefits.

(A separate interagency governmental report did attempt to put a price earlier this year on the “social cost of carbon.” Its tentative conclusion of about $21 per ton in 2010 was inevitably criticized as inaccurate).

Keohane also cautions that while the EPA used some of the best economic models available, those models still aren’t very good at taking into account future technological change — that a price on carbon will incentivize individuals and industry to come up with whole new ways of reducing emissions and saving energy.

“This is an important exercise,” Keohane said, “but the notion that we have much faith in a precise dollar estimate that’s in 2040, 2050, I don’t think anyone thinks we have a really good ability to predict the economy.”

What about today, though: Would you spare the equivalent of a domestic draft at the bar this week for the environment?

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