Cap and Trade Will Produce Net Direct Benefits to Poorest Households

A Congressional Budget Office memo released late last week estimates that by 2020, the greenhouse gas cap and trade system as designed under the Waxman-Markey Climate Change bill would produce a net benefit to the poorest households. The amount is modest – $40 per year (2010 dollars) – but the analysis clearly shows that the Doomsday predictions of massive costs for average households from opponents of cap and trade are way off-base. The bill has been listed for a House vote this Friday.

According to the analysis sent to Rep Dave Camp, a ranking member of the powerful House Ways and Means Committee, the highest net cost will be on fourth income quintile households (the 60th to 80th wealthiest percentiles) – $340 dollars per year. Middle income quintile households will see a net cost of $235, second quintile just $40, while the highest quintile will see their costs rise by $235.

The costs of not acting to avert global warming are well known and acknowledged by all save apologists for vested interests, mostly in the oil and coal industry.

Under the bill, emissions of greenhouse gases would be controlled through the establishment of two sets of limits (the cap) – one for greenhouse gases, (mostly carbon dioxide) and one for hydroflurocarbons. Emitters of greenhouses regulated by the bill would be required to reduce their emissions or hold allowances for each ton of greenhouse gas emitted, some of which they could buy from non-regulated entities who had created credits either by reducing their own emissions or by storing emissions in trees or the soil or from other companies who had not used their credits bought or received from the federal government (the trade).

Initially, the bulk of allowances will be given away, but by 2035, 70% of the greenhouse gas credits will be sold through auction by the federal government. In 2020, the year analyzed by the CBO, 17% of the credits will be sold.

The driving force behind Cap and Trade is to raise energy prices to dampen demand. The increase in price comes from generators and users of energy passing on costs to consumers of the cost of credits and energy reducing innovation. In 2020, the CBO estimates that allowances and acquistion of allowances in the secondary market will make up 96% of the increased costs.

These costs will be offset through the distribution of the revenue generated by the auction of allowances, either as direct rebates and credits, or as new employment opportunties and wealth creation generated by investment of the revenue in energy conservation and emission control activities.

In 2020, low-income household budget relief will be achieved primarily through allocation of 15% of the allowance value to energy rebates and tax credits. Another 15% will go to utility and natural gas companies to provide billing rebates to all residential consumers.

Half of the allowance money will be given to US business to offet their increased costs. Trade-exposed companies will get 15%, while 30% will go to utilites and natural gas companies to provide rebates for commercial and industrial companies.

10% of the allowance money will be used by state and federal governments to spur innovation to reduce emissions and encourage energy efficiency. This would be refected in lower household energy and other everyday costs, plus the generation of green jobs.