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Oil & Gas Journal

Bob Tippee
Editor

The climate-change proposal by US President George W. Bush deserves credit for damage control.

On Apr. 16, Bush announced a goal of halting the growth greenhouse-gas emissions by 2025.

The plan emphasizes technology, appeals for parallel efforts in all economically growing countries, asserts the need for accelerated cuts in power-plant emissions, and relies on incentives, including for nuclear energy.

Because it spurns mandates, the proposal drew criticism from advocates of aggressive climate-change response.

And because it presumes the need for response, the plan alarmed observers who remain doubtful about the ability of politics to influence climate and worried about the economic effects.

Bush disclosed at least part of his motivation by citing "a growing problem here at home": court rulings authorizing regulators to limit greenhouse-gas emissions under air-quality and other environmental laws.

"If these laws are stretched beyond their original intent," he said, "they could override the [energy] programs Congress just adopted and force the government to regulate more than just power-plant emissions."

The president rejected tax increases but didn't mention cap-and-trade schemes such as the one proposed in a bill the Senate is expected to consider soon (OGJ Online, Apr. 8, 2008).

That's appropriate. Economically, they do the same thing: raise the cost of energy use. With a direct tax, energy users see what's happening to them. Cap-and-trade schemes camouflage the effects.

Either way, the costs are real.

A week before Bush spoke, the Congressional Budget Office estimated costs of the Senate bill—"revenues," in the language of fiscal politics: $1.2 trillion during 2009-18 net of income and payroll tax offsets. And meeting mandates in the legislation would cost private companies an estimated $90 billion/year during 2012-16, CBO says.

The average cost is $165 billion/year. As a share of last year's gross domestic product, that's 1.3%.

For perspective: Receipts from the federal income tax this year, according to an estimate by the Heritage Foundation, will be 8.5% of GDP.

The cap-and-trade proposal by the Senate thus represents a hard punch to a jittery economy. The pain is just harder to see coming than that of a direct tax.

(Online Apr. 18, 2008; author's e-mail: bobt@ogjonline.com)