Budget Office: Cap-and-Trade Costs Will Weigh Heavily on Consumers
Bill Murray
5/8/2009
Oil Daily
Energy customers and the general public would bear most of the cost of a carbon emissions trading system, regardless of whether emissions allowances are sold or given away for free, the Congressional Budget Office (CBO) said in a report to Congress.
Debate over a cap-and-trade emissions bill has slowed to a crawl in the House of Representatives, though there has been talk of a deal that would give industries and utilities up to 55% of the available emissions credits free of charge.
House Energy and Natural Resources Chairman Henry Waxman is struggling to push through his bill by the end of May. He hopes to set up a national carbon trading market to cut US greenhouse gas emissions 20% by 2020 from 2005 levels.
"Waxman wants to get the bill out by Memorial Day, but it is impossible to say what is in that bill on a day-by-day, hour-by-hour basis," said Senator Bennett Johnston, a former Chairman of the Energy and Natural Resource Committee.
"The biggest question has to do with credits. The utilities want everything free. Surprise, surprise, there is not any group in the United States that wants to pay for their allowances," Johnston added.
Differences in cost estimates bedevil the climate change debate. The White House said earlier this year that it expected a cap-and-trade system to generate $650 billion in revenues over an eight-year period. However, a CBO projection of last year's Lieberman-Warner legislation that included an initial free allocation of 75.5% of the permits estimated ten-year costs of $1.2 trillion.
"Restrictions on emissions would lower overall output through several channels." said CBO Director Douglas Elmendorf in written testimony before the Senate Finance Committee. "CBO expects total employment to be only modestly affected by a cap-and-trade program, however, some regions and industries would experience substantially higher rates of unemployment and job turnover."
Both Democrats and Republicans on the Finance Committee expressed misgivings about the cost of the program and whether market mechanisms were safe after the recent meltdown in US financial markets.
"The trading scheme thing worries me," said Senator Maria Cantwell, (D-Washington). "Last November, Credit Suisse announced that they were securitizing carbon deals -- bundling together the carbon credits from 25 offset projects and splitting these into three tranches -- representing different risk levels. To me that sounds a lot like what we just did with mortgage-backed securities that were at the heart of our economic meltdown."
Concern about the impact of speculative trading on the market price of carbon could be alleviated by limiting the life of emissions credits to just one year, Elmendorf said.
The wildly fluctuating cost estimates stem from different views about the percentage of emission credits that would auctioned and the types of offsets that would used.
None of the estimates account for "externalities" such as pollution, or global warming, which could cause the globe to warm by up to 6° Fahrenheit over the course of the present century, the CBO said.
Several of the panelists said they viewed a carbon tax as superior to a carbon trading system because of its increased transparency and cost certainty for industry, although there would be less control over the amount of carbon emitted.
"Most economists would say that a carbon tax is more efficient because it reduces the volatility of the price of emissions," said Elmendorf. "But ... one is less certain of the amount of reduction that would be achieved," he added. |
