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August 1st, 2008

Changing the Climate Will Cost You

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Correcting any harmful changes to our climate brought on by pollution has become less about jumping on the “green” bandwagon than it has been about securing a healthy, sustainable future. So much so that the Lieberman-Warner Climate Security Act of 2008, sponsored by US Senators Joseph Lieberman (I- CT) and John Warner (R-VA), calls for the US to cut its greenhouse gas emissions 63% from 2005 levels by 2050. The bill would allow the government to set a cap on emissions from big business by auctioning permits that could be bought, sold, or traded on the market. This system of limiting pollution, supported by both presidential candidates, is known as “cap-and-trade.”

The plan sounds ambitious, but like any government plan, it’s going to cost you. Fears surrounding the idea of capping carbon emissions are that stringent restrictions will constrict the US’s Gross Domestic Product (GDP) as the years go on. Critics say not only will these environmental actions damage GDP, they will lower annual incomes, and make energy bills more expensive. According to the July issue of Money Magazine, “The Congressional Budget Office estimates that a program reducing emissions by 15% could cost a middle-income household about $1,000 a year.”

The findings from a study that analyzed the Lieberman-Warner bill by the National Association of Manufacturers (NAM) and the American Council for Capital Formation (ACCF) found:

…a gross domestic product loss of $151 billion to $210 billion in 2020 and $631 billion to $669 billion per year in 2030; 1.2 million to 1.8 million fewer jobs in 2020, and 3 million to 4 million fewer in 2030; annual household income losses of $739 to $2,927 in 2020 and $4,022 to $6,752 in 2030; electricity price increases of 28 percent to 33 percent by 2020 and 101 percent to 129 percent by 2030; and gasoline price increases of 20 percent to 69 percent by 2020 and 77 percent to 145 percent by 2030.

Like any major legislation, there are two sides to every story. Environmentalists have documented their own analysis that such an effort will be worthwhile and less damaging to GDP, personal incomes, and energy prices than the NAM and ACCF claim:

· Under the Climate Security Act, annual household consumption grows by 81 percent from 2010 to 2030 – just two percentage points less than what growth would be otherwise.

· Emissions allowances would cost $22 – $35 per ton in 2015 and $28 – $46 in 2030 – significantly less than other model runs that do not account for current energy policy and market mechanisms to manage costs.

· National electricity prices would never rise more than 20 percent over 2005 levels – and that change would happen slowly over decades.

The Christian Science Monitor also weighs in:

Under the Lieberman-Warner bill, US gross domestic product grows 80 percent from 2010 to 2030 – just one percentage point less than projected without the bill. And average annual per-household consumption grows 81 percent over the same period – just two percentage points less than without the bill.

No matter what, this “rescue” bill will not let consumers escape unscathed; we will feel the costs of this bill through higher taxes, and a crimp in incomes thanks to higher energy bills. Today, the option to receive the energy in your home via alternate forms of energy has already boosted energy costs. No one is arguing the fact this “pay to pollute” bill may cost households more with every passing year.

A current form of the bill is being bounced back and forth by the House and Senate. Whether the bill passes or not, countries around the globe just may need some form of structured law to prevent drastic climate change from happening any faster than it already is.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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