POWER July 2010 - 6

SPEAKING OF POWER
Carbon Controls Fail
Business Case Study
C
ap-and-trade programs are featured
in at least two U.S. legislative proposals
to reduce carbon emissions,
usually by around 80% by 2050 using a
2005 baseline. The benefits that accrue
from the immense investment required to
reach these goals are nebulous and don't
occur until decades after the investment.
Based on my back-of-the-envelope
analysis, the cost-benefit ratio of these
proposals does not pass a cursory costbenefit
analysis.
I have searched the literature and found
little published on cost-benefit analysis of
the latest cap-and-trade proposals such as
the ill-fated American Clean Energy and
Security Act (aka Waxman-Markey). The
recently unveiled American Power Act
(APA) seems to have more utility executive
support than Waxman-Markey but still
proposes to reduce CO2
same period.
by 80% over the
Useful Financial Tool
A cost-benefit ratio is a simple financial
tool, among many, used by prudent government
managers to evaluate the beneficial
impacts of environmental policies
against project cost for a slate of alternatives.
Often the analysis includes aspects
of a project that are difficult to quantify,
such as quality of life and expected health
effects. Similar analyses were made prior
to SO2
, NOx, and other earlier pollutant
reduction rulemaking. The results always
found that the benefits for society far outweigh
the costs.
What is the cost-benefit ratio for the
proposed APA cap-and-trade regime? It's
time, as I have on several occasions in
this column, to pull out my pen and envelope
and run the numbers.
The Beneits
The APA proposes to reduce CO2
emissions
by 17% by 2020, 43% by 2030, and 80%
by 2050 from a 2005 baseline.
Recent Energy Information Administration
data show that the portion of global
CO2
emissions of all types attributed to
the U.S. is 20.2%, decreasing (given the
expected emissions increases from less6
developed
countries) in the out years.
The trend in atmospheric CO2
concentration
for the past few decades is about a 2
ppm per year increase, so I extrapolated
the uncontrolled global ambient CO2
concentration
in 2050 as 90 ppm over the
2005 baseline. The portion attributed to
the U.S. is conservatively estimated as
20% of 90 ppm-let's use 100 ppm globally
or 20 ppm as the U.S. contribution. If
CO2
is reduced 80% on schedule by 2050
per APA, then the U.S. contribution to
the global increase will only be 20% of 20
ppm, or 4 ppm.
According to the Intergovernmental
Panel on Climate Change (IPCC) Fourth
Assessment Report (AR4), if carbon emissions
continue unabated, then we should
expect global average annual temperatures
to increase by 2C (rounded up) by 2050 using
the worst-case (Case A1B) projections.
The estimated IPCC pre-industrial level of
CO2
is 280 ppm, and unabated CO2
levels
in 2050 are modeled as rising to 560 ppm,
using the same Case A1B projections.
Let's now put pen to paper. I estimate
the maximum U.S. contribution to global
temperature rise by 2050 as 2C x (18-4)
ppm/280C = 0.1C over the next 45 years.
The same calculation for the year 2020 is
only a 0.02C temperature rise.
Climatologist Chip Knappenberger used
the standard IPCC climate models to conclude
that Waxman-Markey would decrease
global average temperatures by about 0.1C
by 2100, so my estimates are in the ballpark.
For comparison, the accuracy of a
high-quality thermocouple is ±1.0C.
The Costs
The Environmental Protection Agency's
(EPA's) cost analysis of Waxman-Markey
estimated that by 2020 each U.S. household
would pay $160 per year and that
the cost would rise to $1,100 per year
by 2030 for a carbon-reduced economy.
Other analyses found the numbers to be
significantly higher (the Heritage Foundation
predicts numbers 10 times larger),
but let's go with the EPA numbers. Under
this plan-which includes many idealized
and controversial caveats, assumptions,
www.powermag.com
and footnotes too numerous to discuss-
the EPA concluded that the Waxman-Markey
carbon cap-and-trade system will cost
up to 0.8% of our economic consumption
by 2050 if it is not enacted.
The Ratio
The IPCC AR4 report concluded that a 4C
temperature increase will cost the global
community up to 3% of global economic
output. Let's use that ratio to scale our
numbers to determine the benefits (actually,
avoided economic and environmental
damage) of carbon controls.
If we use a 0.1C temperature rise by
2100, then the U.S. will be hit with 0.1
divided by 4 equals 0.08% decrease in
economic output from a non-carbon-controlled
economy. In other words, the costs
of compliance (0.8% drop in economic
consumption) is 10 times the benefits
received (0.08% temperature reduction).
My quick and dirty analysis certainly has
many flaws, but the result remains clear:
A cost-benefit ratio of 10 is a very poor
investment by any reasonable standard.
The day of the climate scientist as
rock star has passed. A Gallup poll survey
conducted March 4-7 found that 48% of
Americans now believe that the " seriousness
of global warming is exaggerated, "
up from 31% in 1997. I expect this survey
percentage to continue its rise as
the public learns more about climate science
irregularities and the cost of the
EPA's CO2
rules.
For professional politicians, these poll
results probably carry more weight than
a thorough business case analysis of the
APA. However, the recent primary results
show the public's interest in supporting
successful businesspersons that will appreciate
a good case study over professional
politician.
Be it poll-driven politics or business
acumen, I expect our current and future
Washington representatives will soon understand
that carbon cap and trade is just
another poorly timed energy tax and a legislative
non-starter. ■
-Dr. Robert Peltier, PE, is POWER's
editor-in-chief.
POWER | July 2010
http://www.powermag.com
POWER July 2010

Table of Contents for the Digital Edition of POWER July 2010
