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Friday, August 14, 2009

Deconstructing the National Association of Manufacturers Analysis of Waxman/Market

The National Association of Manufacturers just produced the results of a study examining the economic impact of cap and trade. The findings, not surprising, is that Waxman/Markey (as NAM refers to it) will have a corrosive effect on the manufacturing sector.

Cumulative Loss in Gross Domestic Product (GDP) up to $3.1 trillion (2012-2030)
Employment losses up to 2.4 million jobs in 2030

Residential electricity price increases up to 50 percent by 2030

Gasoline price increases (per gallon) up 26 percent by 2030

It's important to note that NAM believes that much of the economic impact will back laden. That's because a very large percentage of these credits will initially be given away. Also, the standards will initially start out as mild and become more and more difficult to attain. As such, NAM believes that the significant impact, economically, will be seen 15-20 years from now.

I examined the impact on my home state, Illinois, and here is the analysis. The cost of a carbon credit would start at $48 per metric ton of carbon and increase to $159 per metric ton of carbon by 2030. The impact on the Illinois economy is massive. NAM estimates that by 2020, the gross state product would decrease by up to $2.9 billion in 2020 and by up to $24 billion in 2030. The GSP in Illinois in 2007 was $600 billion. (it's about $13 trillion in the whole U.S.) As such, NAM estimates a 2% decrease in GSP by 2030 by W/M.

The impact on jobs is similar. Again, NAM doesn't see much of an economic impact immediately. Yet, NAM's worst case scenario for job losses by 2030 is 124,000 jobs. The impact on disposable impact also follows the same pattern. We would see mild decreases in disposable income for the first ten years or so and then see that increase dramatically between 2020-2030. NAM's worst case scenario for years between 2010-2020 is a loss of disposable income of $367 per year by 2020. Yet, by 2030, their worst case scenario would see disposable income drop by $1782 per family.

Energy prices would also go up and again the pain is back loaded. Electricity would only go up 2% by 2015. Gasoline would see an increase of 6% by the same date. The biggest impact would be on natural gas which would increase by 20% by 2015. By 2030, electricy would go up by 26%, gasoline would go up by 60%, and natural gas would go up by 79%.

The impact on low income families would be felt the most. (families making $13881 and less) Those families would see their energy bills rise by 4.1% more under W/M in their worst case scenario estimates.

Impact on industry would also be felt. The two biggest manufacturing sectors in Illinois are chemical manufacturing and machinery manufacturing and their output would fall 6.7% and 8.4% respectively.

Finally, there would be a massive impact on state budgets. Energy costs in the state's 59955 schools and 227 hospitals would increase dramatically. NAM sees an increase of 42% in energy costs in those government buildings.

NAM sees the biggest impact of W/M on electricity. Electricity, which currently relies primarily on CO2 generation, would be forced to use "unproven technology to capture CO2". This would force companies that use electricity to use yet unproven technologies like wind and biomass. Since just about everyone uses electricity, this would spread to all parts of the economy

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