Economics International Blog

In the upcoming 2009 session, the Oregon Legislature will consider plans to meet the state’s mandated greenhouse gas reduction goals. The goals were enacted in hopes that reducing the state’s greenhouse gas emissions would help halt global warming. Participation in the Western Climate Initiative’s proposed cap-and-trade program will be a cornerstone of the policies in front of the Legislature.

The Portland Tribune reports that Oregon’s business interests are recognizes that the state’s ambitious emissions goals will come at an economic cost. NW Natural president and Oregon Global Warming Commission member, Gregg Kantor, describes his concerns.

We need to protect workers of businesses in Oregon. You don’t want to create another reason to ship jobs offshore.

Mr. Kantor’s concerns are buttressed by a white paper written by Eric Fruits and Randall Pozdena.

The paper notes that the notion of capping emissions and providing market signals through a cap-and-trade scheme is not conceptually unreasonable or without precedent. However, the cap-and-trade mechanism has a history of implementation difficulties. The difficulties are due to the vulnerability of the caps and permit allocations to political influence and the tendency of permit values to be highly volatile. In the Oregon context, in which the portfolio of politically-acceptable, alternative energy sources is constrained, and the non-carbon technology options undeveloped, these problems may be aggravated.  The studies key findings include the following.

1. Economic output, energy use and carbon dioxide emissions have been tightly cointegrated historically, and energy strongly “causes” economic vitality. This is true both in studies over time and across countries. Of the OECD countries that display lower than average energy use relative to their economies, all have embraced nuclear power–a source that historically has been “off-the-table” in Oregon.
2. The cost to the Oregon economy of meeting the state’s emissions goals are large. Oregon’s economic growth to 2020 would be approximately cut in half, and gross output per capita would be reduced by 20 percent relative to the baseline case.
3. State and local revenues would be reduced by about 13 percent, relative to the baseline case.
4. Energy consumption and technology choices are strongly embedded in long-lived capital. This raises
   theoretical and practical obstacles to the economic development and adoption of low-carbon technology. In addition, because of the existing carbon intensity of the production of capital goods, too-rapid turnover of existing capital may actually accelerate atmospheric carbon accumulation.

Citation:

Fruits, E. and Pozdena, R. J. (2008). Oregon Greenhouse Gas Reduction Policies: The Economic and Fiscal Impact Challenges. Cascade Policy Institute.