Yesterday I attended a hearing of the North Carolina Committee on Global Climate Change where David Tuerck, Ph.D. economist and Executive Director of the Beacon Hill Institute, presented a cost-benefit analysis that Beacon Hill performed of North Carolina’s proposed climate change policies.
Dr. Tuerck’s comments followed directly after a presentation from a graduate student at ASU’s Energy Center, who performed the Energy Center’s “cost-benefit analysis.” Among the assumptions built into the Energy Center’s model that he explicitly admitted to was an assumption of “no supply-side restrictions.” Hence, the model assumes that there is an infinite unused supply of labor and capital in North Carolina that is waiting to be employed. (Of course, this is untrue. Any resources shifted to one sector would necessarily be drawn from another, more efficient sector of the economy.) This assumption is vital to another of the stated assumptions - that there would be a Keynesian multiplier effect. Because these assumptions were made in the analysis, the Energy Center was able to predict a boost in manufacturing due to climate change policies and that overall employment in North Carolina would increase as a result of these policies.
However, Beacon Hill’s peer review highlights these and other major weaknesses of the Energy Center’s model and goes on to show that North Carolina would lose 33,000 jobs and lose $4.5 billion in Gross State Product by 2011. What’s more is that Beacon Hill’s analysis examines only the 9 most costly of the 56 policy options recently proposed by the North Carolina Climate Action Plan Advisory Group (CAPAG).
Despite the strength of Dr. Tuerck’s analysis and presentation, he received several vexing questions from committee members who clearly did not have a thorough understanding of the issues at hand.
One committee member asked where North Carolina’s “competitive advantage” is, asserting that it was no longer in manufacturing. (Of course, the answer is that it is determined by the market and that it changes over time. Also, it is never an absolute advantage in production that is important in trade theory, it is always the relative or “comparative advantage.” Notably - he had described himself as a fellow economist prior to his line of questioning.) After a roundabout manner of questioning the member then asserted that North Carolina’s competitive advantage was in creative capital and that funneling resources into research and development for new technologies would in fact spur more jobs for North Carolina.
When told by Dr. Tuerck that this could be true, but that it would come at the expense of new technologies in private markets, the committee member responded that utilities operate in a regulated market and that private competitors cannot compete to create new technologies in energy markets. I found this particularly amusing because the second presenter on the day had been from a private company that developed new technologies in energy production and then sold those technologies to utilities. I guess he missed that one.
Another committee member noted that air quality, in the past, has vastly improved due to environmental regulations. This is true, yet he failed to grasp that it is a trade-off between increased regulation and economic prosperity (which is left as a policy decision). Also, CO2 emissions have nothing to do with air quality - CO2 is required for life on earth.
Finally, in my favorite comment, climate change was compared to Adolph Hitler. Seriously. While we see it looming, if we refuse to do anything about it before it is too late, we will meet our doom. Signs that the earth may be warming are like the pro-war posters that were hung prior to our entrance into World War II, serving to remind us of that potentially fatal truth. This committee member saw it as our duty to what we can to address climate change now.
My only response is that there were options available at the time to actually stop Hitler. Nothing that could reasonably done now would have any measurable effect on climate change. Big difference. (There are also major questions as to whether a return to a warmer climate would even be a bad thing - it could actually be quite beneficial for humans.) What proposed climate change policies in North Carolina clearly will do, however, is stifle the economy and particularly punish the poorest citizens in this state. But then, they could apparently also stave off the Holocaust.
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