Understanding the economic impacts of the American
Power Act, introduced by Senators Kerry and Lieberman
(K/L bill) can help guide choices on climate change
policy.1 This study analyzes the K/L bill under low and
high cost cases with respect to a baseline that projects the
future in the absence of the bill.2 K/L sets targets that
would reduce GHG emissions to 17% below 2005 levels
by 2020; 42% below 2005 levels by 2030; and 83%
below 2005 by 2050 (Figure 1). The price of carbon
permits (what companies must pay to emit CO2) could
reach between $38 and $46 per metric ton by 2020 and
could increase to between $100 MT and $118 MT by
Impact on Jobs
Under K/L, Arizona would lose 1,400 to 2,200 jobs in
2020 and lose 23,500 to 30,900 jobs in 2030 (Figure 2).
The primary cause of job losses would be lower
industrial output due to higher energy prices, the high
cost of complying with required emissions cuts, and
greater competition from overseas manufacturers with
lower energy costs.
Decrease in Per Capita Gross State Product
Higher energy prices would have ripple impacts on
prices throughout the economy and would impose a
financial cost on consumers. Arizona would see per
capita gross state product (GSP) reduced by $67 to $80
in 2020 and $605 to $797 in 2030 (Figure 3).
K/L’s Impact on Energy Prices
Most energy prices would rise under K/L, particularly
coal, oil and natural gas. In 2030, gasoline would
increase between 15.6% and 18.5%, electricity between
37.8% and 47.2% and natural gas between 41.5% and
56.1%. Table 1 shows the increase in energy prices faced
by a typical Arizona household compared to national
household increases over the 2020-2030 period.
The study used NEMS/ACCF-SBEC, the version of the National Energy Modeling System (NEMS) used in this project, and assumptions
provided by ACCF-SBEC for this analysis. It was performed independent of EIA which uses the NEMS model for energy forecasting and
policy analysis. (See the full report for all assumptions).
“Low” refers to the Low Cost Case, which assumes higher nuclear capacity, fewer constraints on new generating technologies, etc. “High”
refers to the High Cost Case, which assumes low nuclear additions and constrained new generation technologies, etc. (See the full report for
All dollar figures in this report are presented in constant 2009 dollars. With ACCF-SBEC assumptions, the carbon price required to bring
down GHG emissions to the target levels are higher than the price ceilings specified in the bill.
Factors Contributing to Higher Electricity Prices
K/L would reduce GHG emissions from all sectors of AZ
the economy (transportation, residential, commercial, Sector
and industry); however, as the largest emitter of
GHGs, the primary impact would fall on the electric Electricity
sector. K/L would result in the electric industry (Residential)
shutting down most carbon-based generation and/or 2030
using expensive, as yet unproven technology, to 2020
capture and store CO2. To meet the stringent goals of Gasoline
K/L, the electric industry would also have to 2030
substitute high cost technologies, such as biomass 2020
and wind, for conventional generation. 2025
Impact on Economic Growth
High energy prices, fewer jobs, and loss of industrial
output are estimated to reduce Arizona’s gross state
product (GSP) by between $500 and $600 million in
2020 and $5.5 and $7.3 billion in 2030 (Figure 4).
Impact on Industry
Arizona’s major economic sectors will be affected by
emission caps (Figure 5).4 The current two largest less
energy intensive sectors, computer and electronic
product manufacturing and transportation manufacturing,
show decreases in output of 7.0% to 8.6% and 6.5% to
8.4%, respectively in 2030. All manufacturing sectors
will suffer output losses of between 5.7% and 7.1% in
2030, while output from energy intensive sectors falls
between 8.3% and 10.3%. Arizona’s coal production
would fall between 71.1% and 83.5%. Electricity supply
would fall by 12.8% to 5.2% in 2030 (Figure 6). These
continued losses will have a lasting effect on the
economic base of Arizona.
Impact on Low Income Families5
The impacts of K/L will be felt especially by the poor,
who spend a greater share of their income on energy and
other goods than other income brackets. In 2030, higher
energy prices mean that low income families in Arizona
(with average incomes of $22,058) will spend between
16.8% and 17.2% of their income on energy under K/L
compared to a projected 15.3% without K/L. Others on
fixed incomes, such as the elderly will also suffer
Comp.= Computer And Electronic Product Manufacturing, TRAN =Transportation Manufacturing; MAN= Manufacturing Industries; EIS=
Energy Intensive Sectors.
These projections assume that the energy expenditures by income quintile in the state are the same as the average for the census division,
since there is insufficient data to accurately calculate this quantity on the state level.
Impact on State Budgets6
The increases in Arizona’s energy costs under K/L will
impact expenditures throughout the state. Specifically,
Arizona’s 2,644 schools and universities and 95 hospitals
will likely experience as much as a 1.3% percent increase
in energy expenditures in 2020 and a 19.8% to 27.8%
increase in 2030. For government entities, costs for
services, including public transportation and vehicle fleets,
such as school buses, will also rise under K/L.
These projections assume that the expenditures on schools and hospitals are the same as the average for the census region, since there is
insufficient data to accurately calculate these quantities on the state level.