Our simulations show a marked decrease in U.S. energy security risk under the Kerry-Lieberman bill. Passage of the proposed legislation would slow the initial increase in the risk index predicted by the chamber, and by 2030, the risk index would be at least 8 percent lower than it would be otherwise.
There is no single reason why the bill delivers this result, but there are a few critical factors. Kerry-Lieberman would encourage people to conserve energy, which would reduce U.S. exposure to volatile global oil and gas markets; it would boost production of alternative energy (including nuclear power); and it would cut U.S. emissions, making the United States less vulnerable to international environmental pressure. The chamber measures energy security risk in four dimensions: geopolitics, economics, the environment, and the reliability of energy supplies. (The overall index is a combination of these.) Kerry-Lieberman wins on every count, with geopolitical risk falling 7 percent, economic and reliability risk each dropping 5 percent, and environmental risk declining by a whopping 19 percent.
To be sure, not everything comes out rosy. Four of 37 security factors get worse with the bill: energy expenditures per unit GDP, energy expenditures per household, retail electricity prices, and security of world natural gas production. That’s because most energy would become a bit more expensive under cap-and-trade, and because U.S. natural gas production would decline slightly under the bill. On the other hand, energy security would improve for 19 factors, including measures as varied as crude oil prices (down 5 percent), the diversity of U.S. power plants (way up because of more nuclear and renewable energy), and the security of U.S. natural gas imports (which would drop to zero by 2030).
Indeed, our analysis likely underestimates the bill’s virtues. Take just one example: Among the chamber’s 37 energy security factors is a measure of federal spending on energy and science research and development — the greater the spending, the lower the energy security risk. The chamber assumes that such spending will never increase. The Kerry-Lieberman bill, though, devotes $4 billion per year between 2013 and 2030 to precisely that purpose. Had we included that change, we would have predicted an even lower energy security risk with the bill. Moreover, on a few occasions, we could not precisely reproduce the chamber’s methods, since some parts of the U.S. government models they rely on are confidential; in each of those cases, we made sure to underestimate the value of the bill. Finally, our modeling of the Kerry-Lieberman bill assumes no improvement in efficiency standards for cars and trucks beyond the increase currently scheduled through 2016, despite language in the bill directing the administration to continue ratcheting up those standards in the years ahead.
When Sens. Kerry and Lieberman introduced their bill last month, the chamber surprised many observers by announcing that it would carefully study the legislation before pronouncing judgment. It also laid down an important marker: “It will be critical,” the group noted in a press release, “to determine how this bill will impact a broad range of industries as well as America’s energy security.” The new index is not the only way to measure energy security risk. But if the chamber believes in its own system, it should stop warning of the dangers of cap-and-trade and start touting the security benefits that Kerry-Lieberman would bring to America.