Will the New Climate Bill Damage U.S. Energy Security?

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Few groups have been more strident in their opposition to cap-and-trade legislation than the U.S. Chamber of Commerce. Last year, four prominent members of the powerful business lobby, including Exelon Corp. and Pacific Gas & Electric, quit on account of its obstructionist approach to climate policy. When some activists announced, in a prank press conference, that the chamber would throw its weight behind an ambitious climate bill, the group responded with a lawsuit.

In arguing against cap-and-trade, the chamber has repeatedly advanced the notion that such legislation would harm U.S. energy security in some fashion or another. So last month, when the chamber's Institute for 21st Century Energy announced that it had created a comprehensive new index of "Energy Security Risk"--a tool designed "to track shifts in U.S. energy security over time and assess potential impacts of new policies"--we wondered whether its calculations might be applied to the most recent energy and climate change policy proposals. In other words, what would the chamber's own definition of energy security say about the cap-and-trade bills the group so consistently opposes?

To find out, we ran the numbers on the clean energy and climate change bill unveiled by Sens. Kerry and Lieberman last month. We found that, according to the chamber's own definition of energy security risk, the bill would help America, nearly across the board.

Energy security is notoriously difficult to define and thus serves as the perfect weapon for attacking legislation: Just pick a bill, find a random but scary-looking detail (higher electricity prices!), and then claim that it will put the homeland in danger. This is an established tool in the chamber's arsenal. The group's Web site declares that it "will work to discourage ill-conceived climate change policies and measures that could severely damage the security and economy of the United States."

Now the chamber's new "Index of U.S. Energy Security Risk" assigns some firm numbers to a slippery concept. It combines 37 factors that measure how our energy use affects the economy and national security. For example, one determines the security of global oil supplies by looking (in part) at whether oil is being produced in countries with free or repressive governments; another measures how much energy the United States uses to produce a dollar of GDP; a third evaluates the diversity of the U.S. power plant fleet, since greater variety tends to make us more resilient to unexpected events.

With these definitions in hand, we now have a way to calculate what the chamber should really think about the Kerry-Lieberman bill. How would cap-and-trade affect these 37 factors and the country's energy security risk? In 2009, the group's index was at 83.7. (Higher scores indicate greater risk.) The chamber predicts how the index will evolve in the future by using projections from the Department of Energy's 2009 Annual Energy Outlook, along with some related data from another U.S. government publication. In the absence of any new U.S. policies, they say, the index will rise by 18 percent between today and 2020--from 83.7 to 98.8--before declining slightly through 2030.

We started our own work by making sure we could reproduce the chamber's predictions using from the Annual Energy Outlook data that they reference in their report. It took some careful calibration to match the chamber's numbers, but we ultimately achieved better than a 99 percent match. Having validated our approach, we then simulated the effect of the Kerry-Lieberman bill on U.S. and global energy systems over the next two decades using the same modeling system that the government uses to produce the Annual Energy Outlook. (A complete analysis of the bill can be found here. Extensive detail on our methods and assumptions in applying this analysis to the chamber's index, and complete results, can be found here.)

Presented by

Michael Levi and Trevor Houser

Michael Levi is the David M. Rubenstein senior fellow for energy and the environment at the Council on Foreign Relations. He was project director for a CFR-sponsored task force on climate change and is the author of On Nuclear Terrorism. Trevor Houser is visiting fellow at the Peterson Institute for International Economics and partner at the Rhodium Group, a New York-based economic research firm.

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