Cap-and-Trade Won't Cause Mass Manufacturing Migration

Cap-and-Trade Won't Cause Mass Manufacturing Migration

As the U.S. House Energy and Commerce Committee wrestles over the draft climate change legislation proposed by Reps. Henry Waxman (D-Calif.) and Edward Markey (D-Mass.), a new study has been released suggesting the feared economic toll may be lighter than some predict.

Energy intensive manufacturing interests in the U.S., such as cement, paper, chemical and steel, would take a modest hit if a greenhouse gas cap-and-trade system, similar to the framework proposed in Waxman-Markey bill, was implemented. 

The financial burden, unlike what some opponents are suggesting, wouldn’t cause companies to flee the country for friendlier shores, says the report, “The Competitiveness Impacts of Climate Change Mitigation Policies,” from the Pew Center on Global Climate Change.

The study is based on the assumption that a ton of carbon dioxide equivalent will cost $15, with no price on emissions in other countries. These energy-intensive industries would lose an average of 1 percent of their yearly production to imports, but various policies, such as border adjustments or rebates, could offset the economic sacrifice.

Using a calculation to determine the “competitiveness” of various industries, the study concluded much of the negative impacts produced by a cap-and-trade would be primarily caused by the transition to less carbon-intensive products, instead of a migration of jobs or production offshore.

“This is one of the most sophisticated efforts ever to quantify the potential competitiveness impacts on energy-intensive industries,” Eileen Claussen, Pew Center president, said in a statement. “The analysis shows clearly that, at the price level studied, the potential impacts are very modest and very manageable.  Policymakers have a range of policy tools to mitigate the modest economic impacts that may be foreseen.  The bottom line is that fear of competitive harm should not stand as an obstacle to strong climate policy.”

Economists Joseph E. Aldy and William A. Pizer, formerly affiliated with think tank Resources for the Future, performed the analysis but have since moved on to positions in the Obama Administration.