THEGREENGROK

How Much Is That Climate Bill in the Window


by Bill Chameides | September 21st, 2009
posted by Erica Rowell (Editor)

Permalink | 3 comments

Correction appended.

The long-awaited Congressional Budget Office report on the costs of the Waxman-Markey climate bill hit the streets on Thursday.

The bill is projected to decrease our nation’s gross domestic product (GDP) by

  • 0.25-0.75 of 1.0 percent by 2020 and
  • 1–3.5 percent by 2050.

Is That a Lot?

Well, the CBO estimates that GDP will increase by a factor of 2.5 between now and 2050 — that’s 150 percent. So that would mean that if we enacted Waxman-Markey (H.R. 2454), by 2050, GDP would increase between 142 and 148 percent instead of 150 percent. Doesn’t sound like so much of a drop, does it?

Today’s GDP is a little less than $14 trillion. So one percent of that would be about $140 billion and three percent would be about $420 billion. If the GDP is 2.5 times larger than $14 trillion in 2050, then three percent of GDP would be almost $1.1 trillion. That sounds like a significant chunk of change. But is it? Let’s try a different tack.

Comparison Shopping

Percentage of U.S. GDP spent on:

Health care: 16
Defense department: 4
Tobacco and alcohol: 1.3

Imported oil: 3

Estimated cost of Waxman-Markey by 2050 as a percentage of GDP: 1-3.5

If given the choice, would Americans rather spend:

  • 3 percent (or likely more by 2050) of GDP on imported oil or
  • an equivalent or smaller amount reducing our dependence on foreign oil while also helping to slow global warming?

Note:

In June the CBO had estimated that the average annual household cost of H.R. 2454 would be about $175 in 2020. This report puts that cost at $160 per average household.

This post has been revised to reflect the following correction:
Correction: September 23, 2009
As originally published, we mistakenly calculated the increase of GDP between now and 2050 to be 250 percent; it should have been 150 percent. The projected impact of Waxman-Markey on GDP in 2050 in turn would mean an increase between 142 and 148 percent, not the 241 and 247 percent originally published.

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3 Comments

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  1. Alison Holtzschue
    Sep 24, 2009

    If I understand correctly, the CBO analysis does not even attempt (wisely) to measure the positive impact on the economy from innovation that would be spurred by a carbon cab. . .a little like predicting today’s GDP in 1970 without counting the tech sector, right?

  2. rustneversleeps
    Sep 21, 2009

    Bill, I’ve not read the full report, but I think the “Comparison Shopping” part of your post is mixing metrics… The CBO is suggesting that enactment of the bill’s provisions might lead to a GDP of 1 – 3.5% less than it would otherwise have been in 2050. That doesn’t mean that this is what we would be spending on clean energy and the like. It suggests that such spending or costs for caps, etc., might inhibit growth that otherwise might have occurred. So, it is not a fair comparison to contrast a potential reduction in GDP to the current % of GDP spent on a specific sector – healthcare, defense, etc. I hate picking nits*, because your point is nonetheless correct: it does not necessarily have to cost us much – not in absolute dollars, not in dollars relative to other major areas of expenditure, nor in foregone levels of overall economic activity**. It’s just that the comparison of (e.g. 1-3% foregone growth versus 16% current spending on healthcare!) is not apt… (* Also, 2.5x GDP in 2050 versus 2009 is 150% growth, not 250%.) ** One could even argue that a major energy and transportation infrastructure conversion and buildout over that time could lead to an increase in GDP, but that again just points out the fallacy of conflating “spending” versus “GDP growth”… Thanks for all your efforts here.

    • Bill Chameides
      Sep 21, 2009

      rustneversleeps – all good points, especially the whopper on 150%. Apples and oranges, maybe? I find it a useful comparison to get a sense of the amount of money we are talking about. Did not mean to suggest that that was the total amount we would be spending on clean energy and the like, anymore than to suggest that the amount of money we spend for imported oil is the true total cost to our economy of getting and securing that oil.

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