Cap and Trade Rules
The Lieberman-Warner Cap and Trade Bill: Quick Summary and Analysis

By Casey Lartigue and Ryan Balis
The National Center for Public Policy Research
June 2008

Introduction and summary

The United States Senate will soon begin debate on America's Climate
Security Act of 2007, popularly referred to as the Lieberman-Warner
bill after its chief sponsors, Senators Joseph Lieberman (I-CT) and
John Warner (R-VA).

The legislation ostensibly is intended to cut U.S. industrial
emissions of greenhouse gases in an effort to reduce the risk of
catastrophic global warming. Senator Lieberman has estimated the bill
would reduce overall U.S. greenhouse gas emissions by up to 63% by
2050.1 The policies the legislation would impose, however, have
little hope of meeting this target and would likely have little impact
on the climate even if it did.

Lieberman-Warner would, however, significantly slow the U.S. economy
and increase the cost of energy and consumer products. It also would
disrupt international commerce.


America's Climate Security Act of 2007 (S. 2191) was introduced in the
Senate on October 18, 2007 by Senators Joseph Lieberman (I-CT) and
John Warner (R-VA). The bill states as its purpose: "[P]rompt,
decisive action is critical, since global warming pollutants can
persist in the atmosphere for more than a century."

Congress is demanding "prompt, decisive action" even though there is
still disagreement among scientists about the level, cause and
consequences of global warming. On May 19, 2008, for example, Dr.
Arthur Robinson of the Oregon Institute of Science and Medicine
announced that more than 31,000 scientists had signed a petition
rejecting the theory of human-caused global warming. A significant
number of scientists, climatologists and meteorologists have expressed
doubt about the danger of global warming and whether or not humans are
having a significant impact for the worse on the climate. Others,
including renowned scientists, have suggested that there are
approaches to deal with global warming that would not necessitate
slowing the economy.

S. 2191 was approved by the Senate Environmental and Public Works
Committee on December 5, 2007 in an 11-8 vote. On May 21, a
substitute bill incorporating America's Climate Security Act, S. 3036,
was introduced by Senator Barbara Boxer (D-CA). Senate debate on that
bill is expected to begin June 2.

The Act would fine any person who violates any part of the law $25,000
per day for each violation and make it easier for the government to
take citizens to court for not complying with new global warming laws.
The legislation would require the Administrator of the Environmental
Protection Agency (EPA) to establish:

(1) A federal greenhouse gas (GHG) registry to monitor compliance
with the Act;

(2) A GHG emission allowance transfer system for covered facilities;

(3) An international reserve allowance program.

The bill would create a national "cap and trade" policy for greenhouse
gas emissions. Companies would be allocated right-to-emit credits
based on how much greenhouse gas they currently emit.


The proposal -- frequently referred to as a cap-and-trade plan --
would establish an emissions trading system that would permit
companies that emit fewer greenhouse gases than they are allowed to
sell the excess portion to companies that exceed their allowances.

The Act's sponsors estimate the bill would reduce U.S. greenhouse gas
emissions by up to 63% by 2050. The initial limits between the years
2005 and 2012 would cap emissions at 5,200 million metric tons of CO2
equivalent to estimated levels during 2005. Between 2012 and 2020,
emissions would be further reduced two percent per year, resulting in
a 15% reduction below 2005 levels.

Lieberman-Warner would establish:

(1) A domestic offset program, allowing regulated facilities to meet
up to 15% of their compliance obligation in any given year with
allowances generated through domestic offset projects certified by
the EPA. They could meet their emissions limits, provided they
receive approval from the EPA, by purchasing credits on the
international emission trading market or by borrowing from credits
they would normally receive in future years.

(2) The Bonus Allowance Account, established using 4 percent of all
emission allowances for calendar years 2012 through 2035, that would
be used to reward firms that sequester their carbon emissions in
geological formations.

(3) The Carbon Market Efficiency Board to monitor and report on the
national GHG emission market.

Within the Treasury Department, it would establish:

(4) The Energy Assistance Fund to provide funds to the low-income
home energy assistance program and to the rural energy assistance

(5) The Climate Change Worker Training Fund to provide job training
to any workers displaced by this Act and assistance to workers in
need of training or re-training;

(6) The Adaptation Fund to help various fish, wildlife, plants and
associated ecological resources in adapting to and surviving the
effects of climate change;

(7) The Climate Change and National Security Council to submit
annual reports to the President, Senate and House of Representatives
the extent to which other countries are reducing greenhouse
emissions through mandatory programs; the threat of climate change
to sensitive populations, national resources and political
stability; and potentially destabilizing impacts of climate change
on national security;

(8) The Climate Change Credit Corporation to auction emission

International Reserve Allowance Program

The Act would require the President to establish an interagency group
to determine whether foreign countries have addressed GHG reduction.
Before being allowed to trade, any U.S. importer of covered goods must
submit approved international allowances. With a few exceptions,
failure to make a CO2 emissions declaration (in writing to the
administrator of U.S. Customs and Border Protection) for each import
would result in the import being barred from entry.

Futility of Lieberman-Warner

The sharp GHG reduction requirements are dependent on significant
technological innovations -- innovations that simply can't be mandated.

Even if they could be, Lieberman-Warner would have virtually no effect
on the climate, according to Dr. Patrick Michaels, a former president
of the American Association of State Climatologists and now senior
fellow in environmental studies at the Cato Institute: "Say the U.S.
actually does what the law says, though no one knows how to. The
result is an additional 0.013 degrees (C) of 'prevented' warming,"
says Michaels.

According to Michaels, such a small change is too small to measure, as
natural temperature variation from year-to-year is many times higher.2
Furthermore, China has surpassed the United States as the largest
emitter of greenhouse gases and its emissions growth is currently
several times larger than the emissions growth of the United States.
The emissions of other developing nations, such as India, are also
growing at a rate much higher than those of the United States.3

Financial Burden

Meeting the goals of the Lieberman-Warner cap-and-trade plan would
impose enormous financial strain on Americans, according to four
independent econometric studies.

A study commissioned by the National Association of Manufacturers
(NAM) and the American Council for Capital Formation (ACCF) projects
that by 2014 retail gasoline prices would increase between 13 and 50
percent; residential electricity prices would rise between 13 and 14
percent; and natural gas prices would increase between 18 and 21
percent. The study, "Analysis of the Lieberman-Warner Climate
Security Act (S.2191) using the National Energy Modeling System
(NEMS/ACCF/NAM)," also projects that the U.S. economy will suffer
employment losses of 850,000 jobs by 2014 and between 1.2 and over 1.8
million more lost jobs in 2020.4

Moreover, households stand to lose between $1,010 and $2,779 of income
each year by 2014. The economy would suffer Gross Domestic Product
(GDP) losses of between $135 billion and $269 billion by 2014.5
Estimates are based upon 2007 baseline energy prices and produced a
range of estimated price increases depending on the future
availability of energy technologies and various socio-political constraints.

The Massachusetts Institute of Technology's Joint Program on the
Science and Policy of Global Change projects that, if Lieberman-Warner
becomes law, in 2015 gasoline prices would increase 29 percent,
electricity prices would jump 55 percent, and natural gas prices would
be pushed up 15 percent. The MIT study, titled an "Assessment of U.S.
Cap-and-Trade Proposals," is based on 2005 baseline energy prices and
accounts for subsidies for carbon capture and storage (CCS), as well
as 15 percent of emissions covered by the trading mechanism.6
An assessment by the Nicholas Institute for Environmental Policy
Solutions at Duke University estimates that in 2015 gasoline prices
would cost up to six percent more, electricity would be roughly 18
percent more expensive and natural gas prices would increase about 15
percent.7 Moreover, the study projects economy-wide GDP losses of $75
billion in 2015 and $245 billion in 2030.8 The 2007 study, "The
Lieberman-Warner America's Climate Security Act: A Preliminary
Assessment of Potential Economic Impacts," considers credit trading as
well as domestic offsets in its projections.

Finally, the Heritage Foundation's Center for Data Analysis projects
that Lieberman-Warner would cripple the future economic health of the
United States. GDP losses are estimated to be between $45.7 billion
and nearly $170 billion in 2015 (2000 dollars)9 - totaling as much as
$4.8 trillion of lost GDP by 2030.10 In addition, Heritage analysts
estimate annual employment drops could be as high as 901,000 as early
as 2016 and will exceed 500,000 per year before 2030.11 By 2030,
skyrocketing energy prices will mean the average household will spend
an extra $608 for heating oil, $647 for electricity and $303 for
natural gas per year from projected 2012 levels.12

Public Support

Regardless of which one of these studies is closer to the mark, the
Lieberman-Warner proposal would impose costs unacceptable to the
American people. Public support is presumably critical to any
government program, but especially one that is intended to govern
economic activity over the next 42 years.

A recent survey conducted by Wilson Research Strategies for the
National Center for Public Policy Research found that 65% of the
public is unwilling to spend more for gasoline to reduce greenhouse
gas emissions. Another 13% say they are unwilling to spend more than
5% more for their gasoline. That's less than the amount projected by
the Duke University study, which provided the most optimistic forecast
of the Lieberman-Warner proposal's effect on gas prices of the studies noted above.

The poll also found that 71% of Americans are unwilling to pay any
more for their electricity to reduce greenhouse gas emissions, with an
additional 16% opposed to paying more than 12% more. This amount,
again, falls under the most optimistic projections of electricity
price increases from the studies noted earlier.

When gasoline and electricity prices are taken together, 90% of
Americans reject the Lieberman-Warner plan's costs - even the
low-range projection.13


Imagine if, in 1966, then President Lyndon B. Johnson had tried to
determine what the emissions levels of America should be 42 years into
the future. Even if he had gotten together the best and brightest
minds of the day, it is unlikely that his advisers would have come up
with data that could have anticipated either our energy needs or our
standard of living today. Although some lawmakers may be reluctant to
admit it, policymakers today are similarly handicapped when it comes
to predicting our future needs, technologies and circumstances.
Lieberman-Warner would embark Americans on an unprecedented and
large-scale manipulation of the national economy that would depress
economic growth and have both short- and long-term unintended
consequences. Lieberman-Warner's "cap-and-trade" could hamstring
Americans for decades.


1 Joseph Lieberman, "Fighting Global Warming the Right Way," Hartford
Courant, October 22, 2007.
2 Patrick Michaels, "Cato Scholar Comments on Warner-Lieberman Climate
Security Act," The Cato Institute, May 30, 2008, available at
http://www.cato.org/pressroom.php?display=ncomments&id=34 as of May
30, 2008.
3 Ben Lieberman, "Five Myths About the Lieberman-Warner Global Warming
Legislation," The Heritage Foundation, May 30, 2008, available at
http://www.heritage.org/Research/EnergyandEnvironment/wm1940.cfm as of
May 30, 2008
4 The National Association of Manufacturers and the American Council
for Capital Formation, "Analysis of the Lieberman-Warner Climate
Security Act (S.2191) using the National Energy Modeling System
(NEMS/ACCF/NAM)," March 2008, p. 8, available at
http://www.accf.org/pdf/NAM/fullstudy031208.pdf as of May 28, 2008.
5 Ibid.
6 Sergey Paltsev, et al., "Assessment of U.S. Cap-and-Trade
Proposals," MIT Joint Program on the Science and Policy of Global
Change, Report No. 146, April 2007, Appendix D, p. D21, available at
http://w3.mit.edu/globalchange/www/MITJPSPGC_Rpt146_AppendixD.pdf as
of May 28, 2008.
7 Brian C. Murray and Martin T. Ross, "The Lieberman-Warner America's
Climate Security Act: A Preliminary Assessment of Potential Economic
Impacts," Nicholas Institute for Environmental Policy Solutions, Duke
University, October 2007, p. 10, available at
http://www.nicholas.duke.edu/institute/econsummary.pdf as of May 28,
8 Ibid., p. 5.
9 William W. Beach, et al., "The Economic Costs of the
Lieberman-Warner Climate Change Legislation," Heritage Center for Data
Analysis, Heritage Center, May 12, 2008, p. 4, available at
as of May 28, 2008.
10 Ibid., p. 2.
11 Ibid.
12 Ibid., p. 18.
13 National Center for Public Policy Research, "Overwhelming Majority
of Americans Oppose Lieberman-Warner Global Warming Proposal, New Poll
Suggests," May 28, 2008, available at
http://www.nationalcenter.org/PR-Poll_Lieberman_Warner_052808.html as
of May 30, 2008.


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