Paul Krugman Gives Take On Climate Legislation

The U.S. House of Representatives passed landmark climate legislation Friday night, but the details in the bill are vast and complex. New York Times columnist Paul Krugman tells NPR's Guy Raz about his understanding of the bill.

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GUY RAZ, host:

Welcome back to ALL THINGS CONSIDERED from NPR News. I'm Guy Raz.

Congress took a dramatic step to fight global warming last night. For the first time, the House passed a climate change bill that could reshape the way we produce and consume energy.

Here to walk us through the bill and its effects on the U.S. economy is Paul Krugman. Mr. Krugman, of course, is a Nobel Prize-winning economist, who's also a columnist for The New York Times.

Mr. Krugman, thanks for helping us out today.

Professor PAUL KRUGMAN (Economics and International Affairs, Princeton University; Economist; Columnist, New York Times): Good to be on.

RAZ: What would this bill actually accomplish if it passes the Senate? Give us the bullet points here first.

Prof. KRUGMAN: The main thing it's going to do is give people an incentive to take global warming into account when they make the decisions. What it will do is it'll put a price on anything that generates greenhouse gases by having a system of licenses that are bought and sold, so it's a market-based system, and that will percolate through. It means that all kinds of things that now might be on the borderline or not worth doing become worth doing because you get some extra savings from not having to buy as many permits.

RAZ: So let me see if I understand this. Basically the way it works now is industry can pollute obviously within the parameters of the existing law. But now, it's going to be something that will cost them money.

Prof. KRUGMAN: That's right. You're in some industry that's been emitting a hundred thousand tons of stuff we don't like in the atmosphere. You now get permits to emit 80,000 tons. If you're going to continue doing a hundred thousand tons then you have to buy those extra permits, so you don't want to do that. And, in fact, if you can cut it down to 60,000 tons, you can sell the extra 20,000 permits. So any way you look at it, there is a price, part of your cost calculation about those emissions which gives you an incentive to do less of it.

RAZ: And this is called cap and trade, of course.

Prof. KRUGMAN: That's right.

RAZ: Is there any precedent around the world? Do we know if this will actually work?

Prof. KRUGMAN: Yeah. We have our cap and trade system ourselves for sulfur dioxide to control acid rain, and it's worked beautifully. The cost of reducing the acid rain pollution has been much less than was expected. We have tradable permit systems for fishing where there 's, you know, limited resources of fish and they worked very well; so, now, this is actually a well-tested form. Well, nobody has ever done that's done it on this scale.

RAZ: And the goal is to cut greenhouse gases over the next decade by about 17 percent below where it was in 2005, 83 percent by the middle of the century. How is this all going to affect the U.S. economy?

Prof. KRUGMAN: Most of the estimates say less than you would imagine because the U.S. economy is a wonderfully flexible, innovative thing and it can adjust to changes and incentives, so all of this is going to lead to probably a little bit less purchasing power than we would otherwise have. Congressional Budget Office says about $175 for the typical household by 10 years from now in losses, about the equivalent of a postage stamp a day, but in return for that, greatly reducing the chance of catastrophic climate change, reducing all of the negatives that come with it.

RAZ: Now it was a close vote in the House last night, 219 to 212. In fact, a lot of Democrats voted against it, 44 of them. Why is that?

Prof. KRUGMAN: Well, at best my count, three of them voted against because they thought it was too weak. They were making a protest vote. But for the rest, look this is going to have some inter-industry effects. Some industries will get smaller. There are parts of the country that rely a lot on coal. They're going to be hurt somewhat. Also there's a lot of mythology out there. Although all of the serious economic analysis says that this is not such a bad thing, energy industries, Republican Party have been busy spreading horror stories about what it's going to do and some Democrats, especially in swing districts, are afraid of that.

RAZ: But do they have some point? I mean you've just conceded that this will have an impact on some industries in the United States.

Prof. KRUGMAN: Oh yeah. It's not cost-free. There are very few good things that are completely without costs. And it's entirely understandable that some people would prefer not to face those and some interest groups that give a lot of campaign contributions will be hurt by this. So opposition isn't surprising. The miracle is that the thing passed anyway.

RAZ: Paul Krugman, explain this to me. I heard Congressman Henry Waxman, who pushed through this bill, argue that it will actually create jobs. How will it do that?

Prof. KRUGMAN: Well, it's going to mean a lot of jobs in all kinds of industries that one way or another contribute to conservation.

RAZ: Like which ones?

Prof. KRUGMAN: There will be more wind farms built. There'll be people retrofitting power plants to reduce their emissions. There will be people weatherproofing housing and commercial buildings. One economist would say is that employment will probably be just about the same as it would've been otherwise. But it'll be somewhat different mixes of jobs. And the main thing is that the cost to American households is going to be really minimal, and we might just save the planet along the way.

RAZ: You willing to bet your Nobel Prize on that?

(Soundbite of laughter)

Prof. KRUGMAN: Which part? That it won't cost very much? I'll be willing to bet that Nobel Prize, no question. Whether it will save the planet is the question, because it might not be enough.

RAZ: Economist, New York Times columnist and Princeton professor, Paul Krugman. Thanks so much for taking the time today.

Prof. KRUGMAN: Thanks so much.

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