Kate Mackenzie Counting the costs of Waxman-Markey

The Congressional Budget Office’s new analysis of the cost of the Waxman-Markey bill has been widely welcomed by those who support the proposal, who are hoping it will damp down claims that it would cost thousands of dollars per year to most households.

In short, it estimates a net cost of $175 a year per household in 2020; the wealthiest two quintiles $245 and $340 per year, and the poorest quintile could even see a net saving from the the measures in the act.

However, estimating the effect of such a complex piece of legislation isn’t easy, and are several caveats: the study did not excluded several elements of the regime that are difficult to predict, such as how costs to government would be distributed and how subsidies for carbon capture and storage might be allocated.

As the CBO notes, much will depend on how these missing costs and benefits are distributed across different income levels:

“…if most of the omitted costs were to fall on lower-income households while most of the omitted benefits were to fall on higher-income households, the distributional outcomes could be significantly different”.

TNR’s Brad Plumer notes it also disregards variations between states, and households in fossil fuel-rich states may fare worse. But on the positive side for Waxman-Markey, he notes that estimates of the cost of environmental legislation tend to be on the high side, because they do not account for technological developments and market innovations. He goes into this last aspect in some more detail in a separate post based around a 1997 study.

Worth remembering however is Nicholas Stern’s conclusion that, the costs of not taking action on climate change will be far higher than that of not taking any action. Of course this depends on whether one subscribes to the ‘precautionary principle’ – that the risk of climate is great enough to warrant taking measures to avoid it.

Related links:

The Waxman-Markey climate bill: How much will it cost? (FT Energy Source, 27/04/09)