The Positive Economics of Climate Change Policies: What the Historical Evidence Can Tell Us

Most economic policy models now suggest a significantly negative impact on the economy if U.S. policymakers choose to reduce greenhouse gas emissions to any significant extent. There are a number of reasons for these inappropriate outcomes. Primarily, they are an artifact of the models and not the data. By turning to the historical record in the United States we can examine recent data to inform policymakers and business leaders what the economic policy models should be saying about energy and climate change policies. We can also use this historical record to perform a diagnostic review of recent modeling exercises to improve our understanding of their missed opportunities.

The economic data and the historical record suggest that:

• Energy efficiency investments can provide up to one-half of the needed greenhouse gas emissions reductions most scientists say are needed between now and the year 2050.
• Investments in more energy-productive technologies can also lead to a substantial net energy bill savings for the consumer and for the nation’s businesses. In the diagnostic assessment summarized in this report, savings are on the order of two trillion dollars by 2050 (measured in constant 2007 dollars).
• Non-energy expenditures within the U.S. tend to be more labor-intensive and provide a greater rate of contribution to the nation’s Gross Domestic Product compared to expenditures on energy. Instead of taking jobs away from the economy, the diagnostic assessment here suggests a small but net positive gain in the economy.
• Hence, shifting away from the production and consumption of conventional energy resources, in favor of more productive investments in energy-efficient technologies, can lead to a more robust economy and to a greater level of overall employment opportunities with the U.S.

Building on the available economic data and the larger historical record, the ACEEE diagnostic review indicates a large opportunity for climate change legislation to open up an even greater potential for efficiency improvements that can power a small but net positive gain in the nation’s economy while substantially reducing greenhouse gas emissions.