On the other side of the equation is the cost to economic growth from cutting carbon emissions through policies that increase costs. Carbon caps and carbon taxes will have roughly the same economic impact if they reduce carbon emissions to the same degree. Estimates of the economic impacts vary depending on the assumptions about the availability of alternatives to cutting carbon. Notable alternatives include building additional nuclear capacity; capturing and sequestering carbon, especially from coal-fired power plants; and offsetting emissions with verifiable and permanent carbon reductions elsewhere.[7]
Although more generous toward nuclear capacity, carbon capture, and offsets than our analysis at The Heritage Foundation, the Environmental Protection Agency (EPA) analysis of the Lieberman–Warner bill did not use the much higher—therefore the less believable—target for offsets found in later bills, such as Waxman–Markey. In its analysis of Lieberman–Warner, the EPA estimated that the carbon cuts would reduce the annual U.S. economic growth rate by 0.11 percentage point.[8]
The third factor needed for the calculation is the impact that the climate policy would have on average world temperature. Chip Knappenberger estimated that the carbon cuts from Waxman–Markey (slightly larger than the cuts from Lieberman–Warner) would moderate world temperatures 0.19 degree Celsius by the year 2100.[9] He assumed the same IPCC high-end sensitivity of temperature to carbon levels: 4.5 degrees Celsius for a doubling of carbon dioxide. Therefore, this gives a high-end estimate of the temperature impact of any carbon reductions.