HOUSE ENERGY/CLIMATE BILL IS A BARGAIN – BUDGET OFFC; VOTE DUE
Estimated Costs to Households From the Cap-and-Trade Provisions of H.R. 2454
Douglas Elmendorf, June 20, 2009 (Congressional Budget Office Director’s Blog)
and
Energy Bill Unfinished, but Vote Nears
John M. Border, June 24, 2009 (NY Times)
and
Energy Bill Will Define 2010 Election, Boehner Warns GOP
Susan Davis, June 23, 2009 (Wall Street Journal)

SUMMARY
The Estimated Costs to Households From the Cap-and-Trade Provisions of H.R. 2454 by the Congressional Budget Office (CBO) concludes that the cap&trade provision of H.R. 2454, The American Clean Energy and Security Act of 2009 (ACESA), will cost on average ~$175 per household per year. Higher income households will pay more while lower income households will save money. The CBO analysis does not consider any cost impacts in the many other provisions of the 1,200-page act.

H.R. 2454’s authors are Henry Waxman (D-Calif), the influential Chair of the powerful House Energy and Commerce Committee, and Ed Markey (D-Mass), climate hero Chair of the Energy Subcommittee.

The authoritative CBO found the costs of cap&trade to be modest. (click to enlarge)

The CBO analysis is based on the compromise Waxman-Markey legislation approved by the House Energy and Commerce Committee at the end of May. Since that crucial approval, the bill has undergone further compromises as it has worked its way through other House Committees.

The 2 most heralded aspects of the legislation are (1) a first-ever national Renewable Electricity Standard (RES) that will require regulated U.S. utilities to obtain 15% of their power from New Energy sources by 2020, and (2) a first-ever national cap&trade system mandating limits on greenhouse gas emissions (GhGs) and an emissions trading market through which allowances to emit can be sold by companies that can do business under their capped levels and allowances can be bought by companies that cannot do business without generating more emissions than their caps allow.

The authoritative CBO found the costs of cap&trade to be modest. (click to enlarge)

There remains doubt the bill has enough support, despite many compromises by its authors, to pass. Reports indicate Speaker of the House Nancy Pelosi (D-Calif) intends to bring the bill to the House for a vote before the July 4 recess and perhaps as soon as Thursday or Friday. Speaker Pelosi needs 218 "yes" votes to pass H.R. 2454. Insiders report she has something like 175 sure votes.

It is opposed by almost the entire Republican House contingent. Only Representative Mary Bono Mack (R-Calif) voted with the Democrats in the Energy and Commerce Committee tally. A coterie of House Democrats also opposes the measure. Some Democrats oppose it because, despite the compromises weakening it, they agree with Republicans that cap&trade introduces changes that will prove too costly and too radical. Other Democrats oppose it because they think the compromises have weakened it so much it cannot be adequately effective to turn back global climate change.

The authoritative CBO found the costs of cap&trade to be modest. (click to enlarge)

To reduce emissions, the price of energies that generate emissions must inevitably go up. The Waxman-Markey cap&trade plan will auction some of the allowances to generate GhGs and return the revenues to ratepayers to compensate them for the higher energy costs.

The cost burden of the plan depends on how many of the allowances are auctioned, what price they bring and how the revenues are returned to ratepayers. In the first years of the Waxman-Markey plan few allowances are auctioned, allowing power companies and industries dependent on fossil fuels to adjust to the New Energy economy. By 2035, 70% of the allowances would be auctioned, creating strong pressure for all power providers and consumers to move to New Energy and Energy Efficiency.

The CBO analysis focused on cost impacts in 2020 (in 2010 dollars). Satisfied of the effectiveness of the mechnanism by which auction revenues will be returned to ratepayers, it estimated a net annual economy-wide cost for the plan of $22 billion, ~$175 per household (0.2% of household after-tax income). That includes all costs of shifting to New Energy and Energy Efficiency. It does not include the economic benefits of GhG reduction and the slowing of climate change, which would inevitably reduce the costs even more.

CBO grouped households in quintiles (fifths of the total population). The lowest income quintile would gain ~$40 per year in 2020 from the redistribution of cap&trade revenues. Households in the highest income quintile would have ~$245 added to their yearly costs.

EPA found cap&trade costs to be modest, too. (click for the full EPA presentation)

COMMENTARY
Four factors account for the costs of the cap&trade provision of Waxman-Markey: (1) The purchase of international offset credits (about $8 billion), (2) The cost of producing domestic offset credits (about $3 billion), (3) The resource costs associated with reducing emissions (about $5 billion), and (4) The allowance value that would be directed overseas (about $6 billion).

A recent analysis from the Environmental Protection Agency (EPA) came to a similar conclusion as the CBO, that the impact of cap&trade will be “modest” if the revenues from the auction of allowances are returned to the households. (See EPA’S TAKE ON CLIMATE LEGISLATION)

EPA calculated that average household consumption will decline $98-to-$140 per year (0.1-to-0.2% of average household income) more with the Waxman-Markey cap&trade system than it would if there were no emissions-reduction legislation. This calculation assumes higher energy prices, price changes for other goods and services, impacts on wages and returns to capital, and the value of emissions allowances returned to households. The latter is expected to offset the other impacts of cap&trade on household consumption.

EPA found cap&trade costs to be modest, too. (click to enlarge)

House Republican leaders nevertheless have continued to oppose the bill, calling it “cap and tax” and insisting it will destroy jobs and cause unduly higher energy prices.

The key to success for the bill may be in a deal between Mr. Waxman and Collin Peterson (D-Minn), Chair of the House Agriculture Committee. By providing Peterson’s agriculture interests with more free allowances in the early years of the cap&trade emissions reduction program, Waxman reportedly won the support of conservative Blue Dog Democrats with big agriculturally-based constituencies. This may move the votes in the “yes” category to over 200.

Both the American Wind Energy Association (AWEA) and the American Council for an Energy-Efficient Economy (ACEEE) endorsed H.R. 2454 this week.

Friends of the Earth is the latest in a series of activist environmental groups who have come out in opposition to the bill.

click to enlarge

Speaker Pelosi reportedly continues to use a contingent of 9 congressmen, including Waxman, Markey, Chris Van Hollen (D-Md.), Bobby Rush (D-Ill.), Jay Inslee (D-Wash.), Mike Doyle (D-Pa.) and Rick Boucher (D-Va.), to round up and sustain the 218 votes she will need for the big floor vote potentially coming Thursday or Friday.

There are also rumors that former Vice President, Nobel laureate, Academy Award-winner and climate change prophet Al Gore will spend Thursday on Capitol Hill rounding up Democratic votes for Waxman-Markey.

The measure is controversial enough that Senate leaders are waiting to see what the House does before moving on an energy/climate bill there. They don’t want to cast votes that could cost them votes if they don’t have to.

EPA found cap&trade costs to be modest, too. (click to enlarge)

QUOTES
- From the CBO report: “Taking into the account the gross cost associated with complying with the cap ($110 billion); the allowance value that would flow back to U.S. households ($85 billion), both in the form of direct relief and indirectly through allocations to businesses and governments (all of which would eventually benefit households in people’s various roles as consumers, workers, shareholders, and taxpayers); and the additional transfers and costs discussed above (providing net benefits of $2.7 billion), the net economywide cost of the GHG cap-and-trade program would be about $22 billion—or about $175 per household.”
- John Boehner (R-Ohio), Minority Leader, House of Representatives: “This will be one of the defining debates of the 2010 cycle…[Cap and trade is a] scheme that will destroy American jobs, raise prices for gasoline, electricity, and other sources of energy, and devastate middle-class families and small businesses…Democrats who vote for it do so at their own peril…[T]he American people will remember this debate and will remember who stands up for them.”

Tho CBO did not do this calculation, EPA found Waxman-Markey will not hamper GDP growth. (click for the full EPA presentation)

- Denise Bode, CEO, AWEA: “The wind energy industry is very grateful for the leadership of Chairmen Waxman and Markey in bringing this legislation to the House floor and we support its passage…We look forward to continuing to work with Chairmen Waxman and Markey and other supporters on Capitol Hill to strengthen the [Renewable Electricity Standard (RES)] and take advantage of the historic opportunity to create new American manufacturing jobs that is presented by the rapid expansion of the global wind energy industry. We urgently need a strong RES to remain competitive with Europe and China, both of which have strong and binding renewable energy commitments, in the race to secure those jobs. With a strong RES in place, we can continue to lead the world’s new energy economy, keep jobs and investment right here in the U.S. and demonstrate our commitment to solving global climate change.”
- Douglas Elmendorf, Director, Congressional Budget Office: “…CBO estimates that the net annual economywide cost of the cap-and-trade program in 2020 would be $22 billion—or about $175 per household. That figure includes the cost of restructuring the production and use of energy and of payments made to foreign entities under the program, but it does not include the economic benefits and other benefits of the reduction in greenhouse gas emissions and the associated slowing of climate change…”
- President Obama: “[H.R. 2454 is] extraordinarily important…[It] will finally spark a clean energy transformation that will reduce our dependence on foreign oil and confront the carbon pollution that threatens our planet…I urge members of the House to come together to pass it…”