Regional Climate Policy Could Damage Minnesota’s Economy

An economic study released today shows a regional cap-and-trade policy would severely handicap Minnesota’s economy, causing sharp increases in energy prices and reducing net employment in Minnesota by 21,000 jobs by 2015. The report, titled “Economic Analysis of the Impact of a Midwest Regional Climate Policy on Minnesota,” was written by CRA International (CRA) and commissioned by Partners for Affordable Energy (PAE) along with several Minnesota trade associations and utilities interested in policies that support affordable and reliable energy.

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“Minnesota has adopted very aggressive goals for reducing emissions in this state and there are a number of avenues we can take to achieve those goals,” said Christina Pierson, executive director of PAE. “Before we choose which policy route to take, it’s important to understand the policy’s effectiveness in achieving the goals and its economic impact. This study offers some important insight into the risks of Minnesota’s current approach toward a regional cap-and-trade policy, suggesting that it will not only fail to achieve the emissions goals but will cause significant damage to the state’s economy.”

A regional cap-and-trade policy — recommended in the 2007 Next Generation Energy Act — would create a system that uses economic incentives to achieve reductions in carbon emissions within the Midwest. Utilities and other businesses would be required to compete for a scarce pool of emission allowances to cover all of their carbon emissions, which would increase costs for energy and consumer goods.

The CRA study indicates the incremental costs to Minnesota are projected to be $42 billion over the next 40 years under a regional cap-and-trade policy, while national carbon emissions will continue to rise. Minnesota is projected to reduce emissions from within the state — by 38 percent in 2050 compared to 2010 — but national emissions will increase by 49 percent over this same time, more than offsetting any reductions in Minnesota.

A regional cap-and-trade policy will place significant economic strain on Minnesota industries and households. Based on the economic analysis of a regional cap-and-trade policy (focused on CO2 emissions) compared to a Minnesota without a regional climate policy, the key findings include:

– Minnesota industries are projected to see a 33 percent increase in electricity prices by 2015, forcing closures and consolidation.

– The state is projected to experience a net job loss of 21,000 jobs by 2015, even when factoring in new jobs generated through conservation and renewable-driven industry.

– The average household is projected to see a 17 percent increase in electricity prices by 2015.

– Consumer spending over the next decade is projected to be reduced relative to current projected levels. By 2020, Minnesota households collectively are projected to have $2 billion less per year to spend than they would with no regional climate policy.

“It’s difficult to see the logic in forcing industries to contract and asking homeowners to pay significantly higher electricity prices when we will make no progress toward the larger environmental goals these policies set out to achieve,” said Bill Blazar, senior vice president of public affairs at the Minnesota Chamber of Commerce. “In light of the heavy economic toll a regional cap-and-trade policy will place on Minnesota, we need to look at more creative, less costly options to meet our existing conservation and renewable energy goals, ranging from industry and household energy audits to lower speed limits.”

The primary policy analyzed in this study included elements of the Next Generation Energy Act of 2007, as adopted by the Minnesota Legislature. An economy-wide carbon emissions cap was formulated based on achievement of the greenhouse gas emissions percentage reduction schedule through 2050 applied to regional CO2 emitting sources. The CO2 cap was modeled to cover emissions from five states that are signatories to the Midwest Regional Greenhouse Gas Accord (Minnesota, Wisconsin, Illinois, Iowa and Kansas). As required by Minnesota law, the cap also counts carbon emissions associated with electricity imported by the five covered states.

“Minnesota has set some of the most aggressive greenhouse gas emissions reduction goals in the country, and achieving those goals within the state, much less at a regional level, ahead of the rest of the nation will be challenging,” explained Anne Smith, vice president of CRA International. “And, the stringent constraints within which Minnesota must execute this law — counting any emissions from electricity imported into the state against Minnesota’s cap and no new nuclear plants — creates a system that would cut off Minnesota’s largest sources of low-cost electricity.”

“The intent of this analysis is not to suggest that Minnesota abandon our commitment to a clean, safe, sustainable environment. We need a more thoughtful and innovative approach to achieve both environmental and economic goals,” added David Radziej, president of the Printing Industry of Minnesota. “Minnesota needs an approach that includes investments in renewables, support for research into environmentally-sound baseload production and energy conservation, without further isolating Minnesota in an already challenging economic environment.”

For more information about the economic analysis, including CRA International’s complete report, a qualitative assessment of a regional policy’s impact on Minnesota industries and data spreadsheets, visit http://www.poweringourlives.com.