By Amanda Levin
As Oregon debates a Cap-and-Invest program that would reduce dangerous carbon pollution across the entire state, legislators are appropriately assessing the possible economic impacts. The proposed legislation would cap carbon pollution and gradually reduce it to 80% below 1990 levels by 2050. Other states and countries have proven that a carbon cap and invest program can provide enormous economic and employment benefits, in addition to the significant environmental and public health benefits, when smartly designed. And this can be true for Oregon too.
A misleading industry-funded “analysis” came out earlier this year claiming significant economic losses and costs from cutting carbon pollution. The report attempts to sound alarms with false assertions that gas prices would skyrocket and Oregon would lose billions in gross domestic product (GDP) in 2050. It also ignores the 54,000 Oregonians already employed in clean energy, and how many more clean energy jobs Cap-and-Invest could create across the state.
The study’s claims spring from erroneous modeling: costs are grossly overstated, ignoring how reasonable market reactions and potential market innovations can cost-effectively lower emissions and drive new clean investments. The report also severely underestimates the role of energy efficiency, which lowers consumers’ bills and reduces carbon pollution. In short, the report imagines a world where there are no ways to cut pollution and markets don’t work.
The industry-funded report ignores the “market” in a carbon market
Under a cap-and-invest system, large industrial companies and utilities pay for a limited number of “allowances,” ensuring the total amount of pollution is capped and declines over time. The price to pollute increases or decreases depending on the supply of or demand for carbon allowances. This market gives covered entities a tangible, financial incentive to reduce their pollution: when they can cost-effectively cut their own emissions, they can spend less on purchasing allowances in the future. At the same time, the revenue generated from the sale of allowances allows critical investments in clean infrastructure to ensure a steady transition away from fossil fuels. Unfortunately, FTI’s study fails to take into account how this new revenue could be invested in programs that would ease this transition and incentivize more clean energy and energy efficiency investments in-state. But other programs have shown that investments in energy efficiency, clean energy development, and green job training programs can reduce emissions, while lowering costs for consumers and creating new employment opportunities.
This is the benefit of a cap-and-invest approach: it can reduce costs by allowing the market to identify and take advantage of the lowest-cost means of reducing emissions. Greater energy efficiency, demand response, and electrification of vehicles and homes can all reduce the state’s emissions at low cost. The industry report ignores all of this, imagining instead that market participants will keep on making the same status-quo decisions, even when better (and cheaper) alternatives are available.
Utilities and consumers DO change behavior and investments
Utilities and consumers can and do respond to price changes by changing behavior and using different technologies. This is not a radical concept, it’s Economics 101. Utilities could increase and accelerate investments in solar and wind power (and Oregon’s power utilities are already committed to do so). Replacing our gas-guzzling cars with clean, efficient electric cars is an increasingly cheaper and cleaner option, and replacing old appliances with high-efficiency versions can improve home comfort, reduce pollution, and lower household energy costs.
In an effort to scare policy makers, FTI ignored these obvious actions consumer and utilities can take. FTI explicitly does not allow for or account for greater efficiency investments, EVs, or heat-pump sales beyond business-as-usual levels. They state that this makes their cost estimates conservative, misleadingly claiming that increased electric vehicles and heat-pumps would only make it harder to meet the cap by increasing electric load. But this is faulty logic. While EVs and electric heating would increase total electric load, electricity, particularly in the Pacific Northwest, is cleaner than gasoline or natural gas. And it is easier to make electricity cleaner in the future than it is to make gas cleaner. EVs and heat-pumps are also more efficient than their gas counter-parts: driving a mile in an electric car uses just a third of the energy it would take in a traditional gasoline car. Replacing gas vehicles and heating with electric version powered from clean, renewable sources can reduce a significant amount of carbon pollution while saving consumers money over the lifetime of the investment.
Furthermore, almost 70% of all raw energy in the U.S. was wasted in 2016. While Oregon has a long history of effective efficiency policies and investments, there are still massive, untapped opportunities to reduce energy waste, which would lower utility bills, create new jobs, and eliminate wasteful pollution. In fact, we have already seen the economic and employment benefits of new, more ambitious energy efficiency investments spurred by other carbon markets.
RGGI – the nine-state Regional Greenhouse Gas Initiative – redirects a significant portion of carbon allowance revenue back into energy efficiency and clean energy programs. As of 2014, this revenue has powered almost $1.4 billion in new, clean investments in the region, which in turn have created over $2.9 billion in new economic activity ($1.3 billion in net economic growth) and sustained over 5,000 new, net full-time jobs during the first 6 years of the program. Greater investments in energy efficiency have also saved consumers over $618 million on energy bills over the first 7 years of the program.
Oregon has the power to amplify the economic opportunities of clean energy and incite greater economic and job growth through a carbon cap and invest program. State policymakers should ignore the misleading FTI study and instead focus on the success of other states and countries already reducing climate pollution, while driving new economic and job growth, through smart policies like Cap-and-Invest.
Amanda Levin is Climate and Energy Advocate for NRDC’s Energy & Transportation and Climate & Clean Air Programs