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October 28, 2010

Proposed Manufacturing and Jobs Bill Results in Lower Employment

October 28, 2010
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The U.S. House of Representatives Ways and Means Committee requested that the Energy Information Administration (EIA) analyze several provisions of their proposed Domestic Manufacturing and Energy Jobs Act of 2010. [i] After analyzing 4 provisions of the proposed legislation, EIA found that the net effect of those provisions cumulatively between 2011 and 2035 would be a net loss in non-farm employment of about 120,000 jobs, and a mere reduction in carbon dioxide emissions of 76 million metric tons.[ii]

The Provisions Analyzed

EIA analyzed the following 4 provisions of the proposed legislation:

  • Extension of the tax credit for manufacturers of energy efficient appliances (dishwashers, clothes washers, and refrigerators) made in 2011, 2012, and 2013
  • Establishment of Home Energy Conservation Bonds for low interest loans and grants for measures that achieve at least a 20 percent reduction in household energy consumption
  • Extension of the placed-in-service deadline for the 30 percent investment tax credit for offshore wind and geothermal properties to January 1, 2017
  • Establishment of an investment tax credit for heavy vehicles using natural gas, covering up to 80 percent of the incremental cost of the vehicle compared to its diesel-fueled counterpart between 2012 and 2016, subject to a cap.

EIA Analysis Results

The impact of these provisions, according to EIA, is small. EIA indicates that the tax credit for energy efficient appliances and the Home Energy Conservation Bonds would reduce projected residential consumption by a mere 14 trillion Btu (0.1 percent) in 2013 compared to the reference case projection in the Annual Energy Outlook 2010.[iii] That consumption savings diminishes over time as the equipment is replaced after the incentives are no longer available.

In the electric generation sector, the extension of the investment tax credit for offshore wind and geothermal technologies results in just 500 megawatts of additional geothermal capacity and no additional offshore wind capacity compared to the reference case forecasts.

The investment tax credit for heavy vehicles using natural gas resulted in an additional 2,800 vehicles sold between 2012 and 2016, above the 9,700 vehicles sold in the reference case forecasts. By 2016, these vehicles represent 0.9 percent of the market, slightly more than the 0.8 percent share that they represent in the reference case.

Other EIA Model Results

While EIA did not report on the impact of the proposed legislation on employment and carbon dioxide emissions, projections for those variables can be obtained from the detailed modeling results provided by EIA. Manufacturing employment between 2011 and 2035 increases by about 30,000 jobs, but total non-farm employment is projected to be lower by about 120,000 jobs compared to the base case[iv]. EIA explains this result in that the provisions modeled reduce consumption relative to the baseline, which in turn reduces employment in the service sector.

Carbon dioxide emissions between 2011 and 2035 are just 76 million metric tons lower than the reference case forecasts. The largest reduction in carbon dioxide emissions occurs in 2017, at 12 million metric tons (0.2 percent). By 2032, carbon dioxide emissions are above the baseline as the more efficient equipment is replaced by technology not covered by the incentives.

Conclusion

The 4 provisions analyzed by EIA would cost the American taxpayer up to $5.23 billion[v] over a period of 10 years, according to the House Ways and Means Committee.[vi] Over that 10 year period, the reduction in carbon dioxide emissions is only 58 million metric tons, or about $90 per metric ton, making those provisions an expensive undertaking for the American taxpayer.

The net benefits from the 4 provisions are either very minor or non-existent and thus do not warrant their cost. Further, from EIA’s modeling results, total employment is lower than the baseline forecasts, making it hard to understand the benefit of the proposed provisions analyzed by EIA.



[i] U.S. House of Representatives, Chairman’s Discussion Draft “Domestic Manufacturing and Energy Jobs Act of 2010,” July 26, 2010, http://waysandmeans.house.gov/media/pdf/111/Discussion_Draft_Summary.pdf

[ii] Energy Information Administration, Analysis of Selected Provisions of the Domestic Manufacturing and Energy Jobs Act of 2010, October 18, 2010, http://www.eia.doe.gov/oiaf/servicerpt/manjobsact/index.html

[iii] Energy Information Administration, Annual Energy Outlook 2010, http://www.eia.doe.gov/oiaf/aeo/index.html

[iv] The base case for this modeling analysis is found at http://www.eia.gov/oiaf/servicerpt/kgl/index.html

[v] The provision for the heavy vehicle tax credit includes all-electric and hybrid-electric vehicles as well as natural gas vehicles. EIA was only able to represent natural gas vehicles because of modeling limitations.

[vi] U.S. House of Representatives, Chairman’s Discussion Draft “Domestic Manufacturing and Energy Jobs Act of 2010,” July 26, 2010, http://waysandmeans.house.gov/media/pdf/111/Discussion_Draft_Summary.pdf

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