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Responding to the Chamber of Commerce

by Michael Levi
June 17, 2010

[This post is coauthored with Trevor Houser.]

The Chamber of Commerce has responded to our analysis, published on Tuesday, of the Kerry-Lieberman American Power Act using their Energy Security Risk Index. They don’t challenge our basic conclusion: that the bill would improve U.S. energy security as measured by their own index. They do, however, make a host of other claims, to which we respond here.

They start with an odd bit of sleight-of-hand:

“This morning our recently released Index of U.S. Energy Security Risk got some attention from the Council on Foreign Relations. They suggested that the American Power Act released last month by Senators Kerry and Lieberman could improve U.S. energy security, however their own analysis shows that energy security risks would increase with passage of the bill.”

The Chamber of Commerce has itself shown that their energy security risk index increases without passage of the bill. We show that, with the bill, it would increase by less. The United States would face lower energy security risks (as defined by the Chamber) with the bill than without it. It is silly to argue against the bill simply because it is fighting against an ugly trend. (Also: Contrary to what the Chamber response implies, our analysis is not a CFR position. CFR does not take institutional positions on matters of policy. The views outlined in our essay are our own.)

They continue:

“We think it’s about time that other organizations consider the energy security implications of proposed legislation just as we have and will continue to do. But in order to make a complete and transparent analysis on any legislation, a number of other data points have to be considered: namely impacts on energy prices, GDP, and American jobs. Even the analysis used by CFR shows that the bill would lead to higher energy prices, cost American jobs, reduce GDP by more than $400 billion from 2021 – 2030 alone. As we undertake a thoughtful and deliberative debate on this important topic, these considerations need to recognized. We must reduce our energy security risk at an acceptable cost and achievable timeline.”

The analysis used in the piece, which Trevor and his team produced last month, does indeed show that the bill would lead to slightly higher energy prices (something which is already incorporated in the energy security risk index). It does not, however, show that the bill would cost American jobs – between 2011 and 2020, average annual employment would be 203,000 jobs higher than business-as-usual. Between 2011 and 2030 employment would be roughly the same as business-as-usual. (It’s only fair to note that Michael has expressed some concerns about that part of the analysis.) The Chamber also claims the analysis projects a decline of U.S. GDP of $400 billion.  This is deliberately misleading. The analysis shows overall economic growth essentially unchanged under the American Power Act. Between 2011 and 2020 average economic output is $11 billion higher than business-as-usual (0.1%) and between 2011 and 2030 GDP is $19 billion lower (also 0.1%). We assume the Chamber takes the $19 billion number, and sums it over 20 years to get to $400 billion. But the $19 billion is the average change over the full 20 year period, not a compounding annual change. If you take the Chamber’s summation sleight of hand and applied it to the jobs numbers, you could make an equally outlandish (and wrong) claim that the bill creates 2.03 million jobs between 2011-2020 (203,000 x 10).

It’s also critical to keep GDP numbers in perspective. $19 billion sounds like a big number, but is pretty small in comparison to the size of the U.S. economy in the decades ahead. In Trevor’s analysis, the U.S. economy would grow by 64% between 2011 and 2030 ($7.8 trillion dollars) under the American Power Act and would mean that the United States gets to the exact same economic size as under business-as-usual in 2030, but one and a half months later than would have occurred without the legislation.

The Chamber concludes:

“Energy and climate legislation would have a broad impact on our way of life and it requires a robust debate about the costs and tradeoffs to transition to a clean energy future. And that’s exactly why the Chamber is currently analyzing the bill’s long-term effects on the U.S. economy, jobs, the environment, energy markets and energy security. In addition to EPA’s evaluation of the American Power Act released today, there are other analyses that will be forthcoming. We are conducting our own analysis with more realistic assumptions (including the availability of offsets and rate at which new technologies can be deployed) and ensuring that we work with our diverse membership to assess its impact on the business community.”

There is little to argue with here. Energy and climate legislation needs to be evaluated against a wide range of criteria, only one of which is energy security. On that front, though, the Chamber should forthrightly acknowledge that its own method for measuring energy security suggests that the bill would be a good thing.

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  • Posted by Greg Robie

    Don’t both analyses omit consideration of the threat to the economy of the US that is inherent with OPEC having denominated its oil sales in the US dollar since the early ’70s (and, at the same time, the currency becoming a free floating fiat currency as Nixon broke the Bretton Woods Agreement and ended the existence of the last of a constitutional currency: the silver certificate)? Don’t peak oil dynamic and/or shifting away from an oil-based economy systemically gut the perceived value of the US dollar as a global reserve currency; fundamentally change all economic assumptions these modeling arguments—manipulative spinning issues aside—are based on?

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