Study: Climate change policy will create jobs, boost GDP

By Anna Austin
Posted October 30, 2009, at 11:41 a.m. CST

Passage of a comprehensive national climate policy will create jobs, increase personal income and boost all U.S. states' gross domestic product, without raising energy costs to the consumer, according to a new national economic impact study performed at the University of California-Berkeley.

Lead author David Roland-Holst unveiled the results Oct. 28 during a Clean Energy Works teleconference. Holst, an economics professor at UC-Berkeley, said the study was an organized collaboration across three universities to examine the impact of a national climate change policy and to capture the diverse perspectives on individual state levels.

We've created a state-of-the-art forecasting model that provides national and state level detail on the economic effects of a national climate policy such as the one being debated in the Senate this week," Holst said. Specifically, Michigan stands to gain from such a policy-one that adopts all of the majors that are currently being considered, according to Holst.

There are three pillars: reducing carbon emissions, improving energy efficiency and promoting renewable energy alternatives, he said. "It's very important that all three pillars are developed in unison in order to get the gross dividend," Holst added. "In Michigan, as these polices are adopted, they stand to gain up to about 40,000 additional jobs by 2020. Gross state product and personal income will grow in Michigan and our estimates are that personal income will be $600 to $1,000 higher in 2020 as a result. It's not a huge increase but definitely much better than many of the doomsayers have predicted."

Explaining how relatively complex climate policies interact and how they affect economies in states such as Michigan, Holst said the study found that comprehensive climate policy will grow the economy and create jobs, that every single state can benefit by adopting a complete set of climate measures, including carbon pollution reduction, energy efficiency measures and renewable energy deployment and that the stronger and more comprehensive the policy, the greater the gross dividends in individual states.

Holst said the there needs to be more focus on the consumer impact of climate change legislation. A lot of the evidence provided so far in the climate policy debate is from industry stakeholders and focuses on the supply side, cost of adaptation and adjustment cost, he added. "Frankly speaking, there's a supply-side bias in public perceptions of climate policy, claiming that it will be expensive and hurt the economy. The fact is, on the consumer side, consumption represents 70 percent of gross economic product in this country, and consumers will benefit from energy efficiency, reduce their dependence on import-intensive and low-job fossil fuel supplies, and use those savings to stimulate growth across other sectors of the economy."

The energy demand side needs to be included in everyone's understanding of climate policy, according to Holst, as energy efficiency and renewable energy will save households money to buy things such as services, and goods that have more in-state and domestic content and much stronger job content. "An example from my own experience, is that the California economy reduced its electricity use per capita by 40 percent over a 30-year period," Holst said. "During that time, households in the state saved $56 billion on electricity costs-and that wasn't put under the mattress, it was spent on other goods and services. It increased the employment dividend in the state by about 1.5 million jobs, jobs that they wouldn't have had if the money had gone into the carbon fuel supply chain. Those jobs created an additional $45 billion in payrolls, so the net benefit for the state was over $100 billion from saving money on electricity."

Holst said that a national climate change policy may not be good for energy suppliers, but it will be for energy consumers, especially for carbon fuel energy consuming states such as Michigan. "Its low hanging fruit for states like Michigan," he said.

Holst added that there have been a lot of scare tactics from power utility sectors and other energy supply sectors about escalating costs as a result of climate policy. "If Michigan reduced its carbon fuel demand by 20 percent, it might not affect world prices, but if the U.S. economy-the world's largest economy-reduces energy demand by 20 percent, it would exert enormous downward pressure on energy prices. We won't see movement in electricity prices or in fuel prices, as a result of these policies. If we do in the long run, these prices will be downward."