In 1993 then-Vice President Gore led the Clinton Administration to propose increasing the taxation of energy.  Called the “BTU tax,” the Administration proposed to tax the energy content of a fuel source, measured in British Thermal Units (BTU’s).

Democrats were in the majority, and 218 of them voted for the bill containing the BTU tax.  38 House Democrats and all 175 House Republicans voted no.

The three vote margin of victory suggests that House Democratic leaders had to twist the arms of reluctant Democrat Members to vote aye.  In this scenario, if you are a House Democrat who does not have a strong view on the substance but is nervous about the politics of voting for higher energy taxes, you would like the bill to pass (so that your leaders get what they want and stop pressuring you) without your vote (so that you don’t give your opponent back home an effective line of attack).

The Senate Democrats, who were in the majority, promptly dropped the BTU tax without a vote.  They also made it clear they would not accept a BTU tax in the final conference report on the bill.

Those nervous House Democrats who had voted for the bill with the BTU tax had the worst of all worlds.  They had cast a costly political vote for no policy benefit.

A phrase soon entered the legislative vernacular.  Senate Democrats had “BTU’d” House Democrats.

Fast forward to 2009.

The House is considering climate change legislation authored by a key subcommittee chairman, Rep. Ed Markey (D-MA).  House Republicans, along with important Democrats like Rep. John Dingell (D-MI), are vigorously opposing the bill, calling it a “cap-and-tax” bill that would raise energy costs.

All indications from the Senate are that legislation similar to the Markey bill is extremely unlikely to pass the Senate this year.  Two important votes in the Senate budget resolution debate sent incredibly strong signals about the Senate’s intentions:

• 67 Senators, including 26 Democrats, voted against creating fast-track reconciliation protections for a cap-and-trade bill, meaning that supporters would need 60 votes to pass a bill, rather than 51.
• 54 Senators, including 13 Democrats, voted for an amendment that would allow any Senator to initiate a vote to block any climate change provision which “cause[s] significant job loss in manufacturing or coal-dependent U.S. regions such as the Midwest, Great Plains, or South.”

These votes suggest that there is not even a working majority in the Senate for an aggressive cap-and-trade bill.  When an actual bill with measurable and visible costs is debated, I expect Senate support to be even weaker.

The conventional wisdom is that Speaker Pelosi will make the House vote on a version of the Markey bill.  With 254 House Democrats, she has a wide margin (36 votes) to ensure passage, but she could easily have important House Democrats like Mr. Dingell making a similar case as House Republicans, that the bill should be opposed because of the higher energy costs for consumers.

Imagine that you are a House Democrat from a conservative, manufacturing-heavy, or coal-heavy district.  Whether or not you privately agree with the substance of the bill, and no matter what your view is on the importance of climate change, you will be asked to cast a politically risky vote for a bill that looks certain not to make it to the President’s desk.

You might say to your leadership, “I am more than willing to vote for this bill if you tell me that we can get the policy benefit of a signed law.  But if the Senate is going to BTU us again, why should I have to take a political risk?”

A cap-and-trade bill is highly unlikely to make it to the President’s desk this year.  Even so, this year’s votes will set the terms of debate for future legislative efforts, when there might be a higher probability of legislative success.

Will House Democrats get BTU’d on climate change?

© 2010 Keith Hennessey - Your guide to American economic policy

Related posts:

1. The New York Times (implicitly) calls for no climate change law
2. Parsing the President: no “climate change”?
3. The President’s press conference: climate change

Here is our Statement of Administration Policy (SAP) on this bill.  It’s four pages, but a very easy read.  If you’re at all interested in climate change policy, I highly recommend you read the whole thing.

Here’s the bottom line from the SAP:

For these and other reasons stated below, the President would veto this bill.

Before I dive into the problems with what this bill does, it’s important to understand what it doesn’t do.  The Boxer amendment would not fix the problems with current law and climate change.  Here’s what the President said about this on April 16^th in the Rose Garden:

As we approach this challenge, we face a growing problem here at home. Some courts are taking laws written more than 30 years ago — to primarily address local and regional environmental effects — and applying them to global climate change. The Clean Air Act, the Endangered Species Act, and the National Environmental Policy Act were never meant to regulate global climate. For example, under a Supreme Court decision last year, the Clean Air Act could be applied to regulate greenhouse gas emissions from vehicles. This would automatically trigger regulation under the Clean Air Act of greenhouse gases all across our economy — leading to what Energy and Commerce Committee Chairman John Dingell last week called, “a glorious mess.”

If these laws are stretched beyond their original intent, they could override the programs Congress just adopted, and force the government to regulate more than just power plant emissions. They could also force the government to regulate smaller users and producers of energy — from schools and stores to hospitals and apartment buildings. This would make the federal government act like a local planning and zoning board, have crippling effects on our entire economy.

Decisions with such far-reaching impact should not be left to unelected regulators and judges. Such decisions should be opened — debated openly; such decisions should be made by the elected representatives of the people they affect. The American people deserve an honest assessment of the costs, benefits and feasibility of any proposed solution.

The Boxer amendment does nothing to fix this problem.

The President thinks there is a right way and a wrong way to address climate change.  This bill falls squarely in the “wrong way” category.  It’s costly, bureaucratically dangerous, internationally counterproductive, and environmentally ineffective.

Costly

The SAP addresses costs on an individual and economy-wide level.  It also describes the enormous expansion of government that this bill would entail.  The following numbers come from two analyses:  one done by the Environmental Protection Agency, and another by the Energy Information Administration at the Department of Energy.

At an individual level:

• The bill would increase gasoline prices 53¢/gallon in 2030, and $1.40/gallon in 2050.  (The effects of climate change policies are typically measured many years in the future, since the changes build up over time).
• It would increase electricity prices 44% in 2030, and 26% in 2050.
• It would reduce a typical household’s purchases by nearly $1400 in 2030, and by as much as $4400 in 2050.

At an economy-wide level:

• The bill could reduce U.S. GDP by as much as seven percent in 2050.
• It could reduce U.S. manufacturing output by almost 10% in 2030, before even half of the bill’s required emissions reductions have taken effect.
• EPA estimates the bill would impose $10 trillion of costs on the U.S. private sector through 2050.  These costs would be passed through to you, the consumer, through the higher fuel and power costs described above.  This would make the Boxer bill by far the most expensive regulatory bill in our Nation’s history.

And for the federal government:

• The bill would increase revenues by $6.2 trillion through 2050.  That’s “trillion” with a “T”.  It does this by creating “auction allowances”, and then auctioning those allowances to those who produce power.  The vast majority of these higher costs will be passed through to you in the form of higher energy costs, producing the gasoline and power price increases described above.
• It would also give a bunch of these allowances away to States, foreign governments, and private entities.  Our experts estimate the value of these allowances given away to be about $3.2 trillion.  Again, that’s with a T.  That’s a big giveaway.  Strike that.  It’s an enormous an unprecedented giveaway.
• The bill would increase federal mandatory (think “entitlement”) spending by $2.6 trillion through 2050, including $346 billion on new training and income support programs, and $750 billion in new foreign aid.  This spending would be on autopilot, and not automatically subject to annual review as “discretionary” appropriated programs are.

Bureaucratically dangerous

The bill creates a staggering number of funds, commissions, and programs to oversee the market and provide “transition relief,” giving an unprecedented amount of control over the U.S. economy to unelected bureaucrats.

Two of the most powerful new bureaucracies are the Carbon Market Efficiency Board and the International Climate Change Commission.  The Carbon Market Efficiency Board would oversee and regulate the new carbon trading markets, and would use “Emergency Off Ramps” and supplemental auctions to affect the supply of emission allowances if they believe the price is too high, allowing the emissions “market” to be subject to the whims of appointed bureaucrats (and the interest groups that lobby them).  The International Climate Change Commission would dictate to importers which countries they can import from, and force importers to submit emission allowances (priced by the Commission) for each category of goods they import from each source country.  The Commission would also auction off a separate pool of international allowances, the proceeds of which would be spent on a new State Department program established to “mitigate the negative impacts of global climate change on disadvantaged communities in other countries.”

These two new government organizations would have unprecedented and terrifying power to influence the growth rate of the U.S. economy, the composition of the economy, and our trading relations with other nations.  The old Interstate Commerce Commission, which regulated railroads for more than a century, pales in comparison.

Internationally counterproductive

Last year the President launched an international effort that we call the “Major Economies” process.  The Major Economies process is premised on the thought that if you want to have a measurable effect on the global climate, then all of the largest emitters of greenhouse gases need to work together.  A solution doesn’t work if the emissions of the big developing nations (like China and India) keep growing unconstrained, while those of the big developed nations (like the U.S.) are limited.

The President’s lead negotiators on the major economies process, Dan Price and Jim Connaughton, have been working with their counterparts from the 16 other largest economies in the world.  They’re trying to reach agreement this summer on a “leaders’ declaration” that would serve as an input into the broader U.N. discussion with 180+ countries.  In this declaration, we are seeking agreement on a long-term emissions reduction goal, and on the need for all major economies to do their part.

The Major Economies process is an attempt at international cooperation with 16 other big countries.  The Boxer amendment would mess this effort up at least in four ways:

1. It would unilaterally impose large costs on the U.S. by limiting our emissions, whether or not other major economies do the same.  This is silly, for even though the U.S. is the world’s second largest producer of GHGs, and we’re about 20% of the world total now, our share will become smaller over time as the developing country emissions grow faster than ours.  Why impose a big cost on ourselves when we don’t even know that others are committed to take actions to do their part?  (This was the flaw in the Kyoto agreement in the late 90’s.)
2. If we were to limit our emissions and a big developing economy did not, then some U.S. factories would close and their firms would build new factories overseas.  The emissions source would shift to this economy.  So U.S. workers and the U.S. economy lose, and global emissions aren’t reduced.  We call this “emissions leakage” and “economic leakage”.
3. The Boxer Amendment would then impose an “import surcharge” on goods from countries that don’t limit their emissions.  Think about this – if China doesn’t change their emissions, we make Chinese goods more expensive for Americans to buy.  Sure, that hurts Chinese producers, which someone might believe would encourage the Chinese to cap their own emissions (we disagree).  But it also hurts American consumers.
4. Threatening import surcharges impairs our ability to get major developing nations onboard with a new agreement.  It could also start a trade war.

There’s so much bad in this bill, that’s it hard to rank the problems.  But the international consequences, and the possibility of provoking a trade war, are at or near the top of the list.

In contrast, in addition to the Major Economies process, the President has proposed to immediately eliminate all trade barriers on clean energy technologies.  He has also proposed creating an international clean energy technology fund, and has pledged $2 billion on behalf of the U.S. if others will chip in as well.  That’s the right way to address climate change internationally.

Environmentally ineffective

You would think that a bill which imposes such large costs on the U.S. economy would at least do a lot to reduce the amount of greenhouse gases in the atmosphere, the future global temperature, and therefore the chance of severe global climate change.

Here are the numbers:

• Based on estimates from the U.N.’s Intergovernmental Panel on Climate Change, an increase of 90 parts of CO₂ per million parts of atmosphere (ppm) would, over many decades, increase the global temperature by about 1º Celsius (I’m oversimplifying.)
• The Boxer amendment would reduce the CO₂ in the atmosphere by between 7 and 10 ppm by 2050, and by between 25 and 28 ppm by 2095.  (EPA estimate)

The scientists tell me I can’t just divide 7 or 10 by 90 (it’s not linear), but the basic point still holds:  the Boxer amendment would reduce future global temperatures by far, far less than one degree Celsius.

So the Boxer amendment would reduce annual U.S. GDP in 2050 by as much as 7%, and U.S. manufacturing output by about 10% in  2030, in exchange for provoking a trade war and lowering the global temperature by less than one degree.

That’s the wrong way to address climate change, and it’s part of the reason why the President would veto this bill.

The wrong way to address climate change

© 2010 Keith Hennessey - Your guide to American economic policy

Related posts:

1. What did President Bush announce today on climate change?
2. The G-8 agreement (especially on climate change)
3. Parsing the President: no “climate change”?