Economic Growth Is Stronger in States Where Carbon Emissions Fell Faster

It has long been the contention of those who oppose curbs on industrial activity that the smoke, dust and fumes it generated was 'the smell of money.' The presumption was that a stronger economy was associated with more pollution because it reflected greater demand for the various products associated with belching chimneys.

This extended to the data on electricity generation in an economy increasingly dependent on electronics and the power that fuels its growth.

New data suggest that this historic correlation may no longer be true. The reasons have to do with all of those factors long associated with the greater efficiency and productivity of the post-industrial intangibles-oriented economy. The knowledge applied to creating a more competitive, cost-reduced supply chain now apply to the generation of power as well.

This de-linking bodes well for the stabilization of costs in regions once considered incapable of addressing the advantages of those with advantages once considered implacably structural, requiring investment and effort too burdensome to overcome. JL
 
Hannah Fairfield reports in the New York Times:

Historically, the demand for electricity was closely tied to growth in the economy; only recently have the two decoupled.

Some critics of the Environmental Protection Agency’s new requirements for power plants argue that forcing emissions reduction will curtail economic growth. But the recent experience of states that already cap carbon emissions reveals that emissions and economic growth are no longer tightly tied together.

One of the ways that states will be able to meet the new E.P.A. standards is by joining a Northeastern cap-and-trade program known as the Regional Greenhouse Gas Initiative, which first put in a carbon cap in 2009. In a cap-and-trade system, the government places a ceiling on total carbon emissions and issues permits for those emissions, which companies can buy and sell from one another.

The nine states already in the program — Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont — have substantially reduced their carbon emissions in recent years. At the same time, those states have had stronger economic growth than the rest of the country.

Growing Economy, Falling Emissions

Economic growth has been stronger in nine Northeast states that have a current cap-and-trade program. Carbon emissions in those states have fallen much more quickly than in the rest of the country.

1.2

1.2

Other 41 states

Other 41 states

Nine Northeast

0.9

0.9

cap-and-trade

states

Nine Northeast

Cap-and-trade

cap-and-trade states

program begins

0.6

0.6

Gross state product,

Carbon emissions from

indexed to change

electricity, indexed to

from 2001

change from 2001

0.3

0.3

2001

2013

2001

2013

1.2

1.2

Other 41 states

Nine cap-and-trade states

0.9

0.9

0.6

0.6

Cap-and-trade program begins

0.3

0.3

Gross state product, indexed to change from 2001

Carbon emissions from electricity, indexed to change from 2001

2001

2013

2001

2013

JUNE 5, 2014

The New York Times

Sources: ENE; Energy Information Administration

Historically, the demand for electricity was closely tied to growth in the economy; only recently have the two decoupled.

These nine states had large emissions drops even before the program began in 2009, in part because the recession and warmer winters lowered the demand for power. The states also began switching to natural gas power, retiring coal units, and adding wind and solar energy generation. As the economy recovered, participation in the program spurred the states to find ways to meet the increasing demand for power without driving up emissions.

Since 2009, the nine states have cut their emissions by 18 percent, while their economies grew by 9.2 percent. By comparison, emissions in the other 41 states fell by 4 percent, while their economies grew by 8.8 percent.

The states in the program “were able to reduce emissions faster and more efficiently than was previously assumed,” said Peter Shattuck, director of market initiatives at ENE, a research and advocacy group based in Boston. “It was encouraging to see how quickly they hit the targets.”

Capping carbon emissions could still slow economic growth, and it is possible that the nine states that joined the cap-and-trade program would have had even better economic growth without the program. These states have more nuclear and natural-gas energy in their portfolios than do many other states; other states that depend primarily on coal power may not be able to reduce emissions as swiftly.

But the results in the nine states suggest that the effect of the cap-and-trade program on growth was, at most, modest. The sharp cut in emissions in the Northeast did not prevent the economy there from doing just as well as elsewhere.

Joining the Northeast cap-and-trade program, or another similar program in California that began in 2013, is one of many ways states can reach the new goals the E.P.A. has set. Other options include taking a series of individual steps — such as upgrading older power plants and expanding nuclear, wind and solar power generation — without a statewide cap. The states themselves will decide exactly how they will meet the goals set for them.

Economists have long praised cap-and-trade programs, compared with detailed mandates from regulators, because they create a market in which businesses are responsible for finding the cheapest way to comply with the regulation. Businesses that devise less expensive ways to reduce pollution can sell their permits to those that cannot change their habits so easily.

The administration of President George H.W. Bush began the original cap-and-trade program in the United States, for emissions related to acid rain. It is considered a major success, with sharp reductions in acid rain at little economic cost.