Higher concentrations of CO 2 can increase temperatures 2 O C – 4.5 O C Bad Impacts: (1) Increased Mortality, (2) Reduced Agricultural Yields, (3) Rising Sea Levels Just how bad is this? The ERP 2010 does not say.

Climate Change Creates Opportunity to Alter the Energy Consumption and Production Trends in the US Lower Consumption of Fossil Fuels Reduces GHGs and Makes US Less Dependent on Imports New Clean Energy Industries Create Jobs and New Technologies

Different Models Give Different Projections with No Additional Actions Taken 100 years from now

Much can happen in 100 Years. For example, Los Angeles had about 300,000 people living there in In 2010 Taoyuan Hsien had about 7 times that many people. Today Los Angeles has 3.8 million in population and 13 million in the greater LA Area.

These numbers do not look consequential Consider Change of 3 o

ARRA (American Recovery and Reinvestment Act) of 2009 increases expenditures and tax incentives for clean energy -- weatherization program ($8 billion to change) -- renewable energy generation (tax credits, loans) -- grid modernization (lines to support renewables) -- advanced vehicle and fuel technologies (hybrids) -- traditional transit and high speed rails ($8 billion) -- carbon capture and storage (research funding) -- transition projects to clean energy ($90 billion)

ERP 2010 claims energy policies can create or save 700,000 jobs by 2012 Note that it is impossible to prove this wrong

Much of the ERP 2010 is devoted to discussing a proposed cap and trade system for limiting emissions of CO 2 This cap and trade legislation is unlikely to be passed in the next two years. This has caused the administration to go for EPA regulations instead.

Impossible to get the US to act when other countries are not part of the agreement

Three factors that affect economic growth (1) Labor Growth (2) Capital Growth (3) Multifactor Productivity Growth – overall productivity of both capital and labor

Productivity is a prime determinant of per capita income ERP 2010 emphasizes the importance of distribution, but functional distribution of income is stable Labor 70% Capital 30%

Obama administration believes government support must be targeted to certain sectors of the economy to improve productivity and Aid to industry must be in line with goals to spread the productivity growth and raise middle class incomes. (see page last paragraph)

Productivity is always up but quite variable. Three periods for productivity growth (1) % (2) % (3) present 2.7% (mainly due to Clinton period dot com boom) Only 1.7% from

What affects average labor productivity growth? 1. Growth of physical capital employed per worker hour 2. Growth of human capital employed per worker hour 3. Growth of total factor productivity (Solow residual) – legal and institutional setting, regulations, taxes (not discussed well in ERP 2010)

R&D is stronger when you have strong incentives to research – low taxes, good property rights, less regulation (not all emphasized in ERP 2010) Strange – ERP 2010 supports tax credits for R&D but then wants to tax high income individuals, many of whom are the ones working in R&D to become rich and who are very successful.

What is important is the overall amount of trade – not just exports

Trade is mainly intra-industry (e.g. cars for cars) at about 70% in the manufacturing sector

Obama administration looking to expand exports by market-opening negotiations Wants to avoid protectionism However, China and Canada have been targeted Greater exports can lead to growth in productivity Productivity growth must be shared