Senate energy panel that there would be "significant shifts"

Congressional Budget Chief Says Climate Bill Would Cost Jobs

OCTOBER 14, 2009, 4:17 P.M. ET

By IAN TALLEY

WASHINGTON -- The head of the Congressional Budget Office on Wednesday countered Obama administration claims that a landmark climate bill would be a boost to the economy.

President Barack Obama and Senate Democrats championing the bill have said mandating greenhouse-gas caps, renewable energy and efficiency standards would be a boon to an ailing economy, creating new low-carbon industries. Millions of so-called green jobs would be created under the cap-and-trade legislation being considered in the Senate, Democrats say.

CBO Director Douglas Elmendorf warned a Senate energy panel that there would be "significant shifts" from emissions-intense sectors such as oil and refining firms to low-carbon businesses such as wind and solar power.

"The net effect of that we think would likely be some decline in employment during the transition because labor markets don't move that fluidly," Mr. Elmendorf said, testifying before the Senate Energy and Natural Resources Committee.

"The fact that jobs turn up somewhere else for some people does not mean there aren't substantial costs borne by people, communities, firms and affected industries," he said.

Sen. Sam Brownback (R., Kan.) expressed the fears of many lawmakers, both Democrat and Republican. "You're talking about a massive market manipulation here on a grand scale that has significant impacts on the Midwest and the South … [including] the likelihood of us to lose a lot of jobs, a lot of businesses," he said.

The CBO director added that although the risks of climate-related impacts on the economy were very difficult to quantify, "many economists believe that the right response to that kind of uncertainty is to take out some insurance, if you will, against some of the worst outcomes."

The CBO estimates that the House-passed climate legislation, a template for the Senate version, would reduce gross domestic product by up to 0.75% by 2020 and 3.5% by 2050.

But Mr. Elmendorf and other senior government experts also said forecasts for economic impacts were riddled with ambiguity.

"The uncertainties are very large, even for 2020, and they get larger over time," the CBO director said.

Two major factors that contribute to that uncertainty are the potential growth of new nuclear power and potential use of international emission credits called offsets that allow companies to invest in low-emission projects overseas.

The Environmental Protection Agency's analysis of congressional climate legislation assumed almost 100 new nuclear power plants over the next two decades.

Sen. John McCain (R., Ariz.) questioned that assumption. "It's a bit presumptuous to take into your calculations a significant increase in nuclear power when there's nothing in the landscape that would indicate that that's the case," he told EPA senior economist Reid Harvey, who testified before the panel.

Without a solution to nuclear-waste storage, a continuing bottleneck in licensing and insufficient loan guarantees to encourage nuclear power financing, "we're just going to repeat what's happened in the last 20 years," Mr. McCain said. No new nuclear power plants have been commissioned in the past two decades, and although there are more than two dozen applications for plants at the Nuclear Regulatory Commission, the government only has loan guarantee authority for about three to four new stations.

Assuming only a small increase in nuclear generation would raise the EPA's estimates for the cost of emitting greenhouse gases by 15% alone.

Many industry officials also question the legitimacy of calculating international offsets, which will require a raft of complex international treaties and which can be very difficult to verify and prone to fraud. By eliminating the international offset assumption from their calculus, the EPA said carbon cost estimates nearly double.

The senior government experts also said the impact to the economy could easily impact different sections of the population disproportionately. The lowest-income quintile could see a positive benefit in their energy bills while the middle classes and industrial and commercial consumers would bear the burden of higher costs.

Write to Ian Talley at ian.talley@dowjones.com

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