Dateline: July 2009
Cap and trade is the mechanism included in the American Clean Energy and Security Act of 2009 to enable the U.S. to meet the bill’s required 80 percent reduction in greenhouse gas emissions by 2050. Cap and trade is also the mechanism that will set off a spirited debate when the Senate takes up the bill later this summer.
The 2009 climate-change and energy bill – the American Clean Energy and Security Act of 2009 (H.R. 2454) – was narrowly passed by the House of Representatives on June 26 and will be debated by the Senate this summer. This landmark bill, cosponsored by Rep. Henry Waxman (D-California, 30th) and Rep. Edward Markey (D-Mass., 7th), is intended to address two primary concerns:
- Reduce Greenhouse Gas Emissions: The bill requires that U.S. emissions of greenhouse gases – mainly carbon dioxide (C02) – be reduced by 17 percent of 2005 levels by the year 2020 and by 80 percent by 2050. Many scientists, and recently the U.S. government, blame the accumulation of greenhouse gases in the atmosphere for global warming.
- Increase Renewable Energy Usage: The bill requires the states to generate more electricity from renewable sources, like wind and solar. The states would be required to produce at least 20 percent of their electricity from renewable sources by 2020. The bill allows the states to account for some of the 20 percent target by implementing conventional energy efficiency programs.
Cap and Trade: How the Bill Would Reduce Greenhouse Gases
The centerpiece and by far the most controversial element of the bill is the “cap and trade” provision intended to help power plants, factories and other generators meet the bill’s stringent greenhouse gas emissions reduction requirements.
The Cap:The bill would place a limit or ‘cap’ on the number of tons of carbon dioxide and other greenhouse gases each company would be allowed to release into the atmosphere each year. The cap on greenhouse gas emissions would be reduced steadily until the ultimate nationwide reduction goal had been achieved.
The Trade: For every ton of greenhouse gas a company releases into the atmosphere, it will be required to have an “emissions permit.” At the start of the cap and trade program, the government would give away most of the necessary emissions permits, but would eventually auction them off at a substantial profit. Companies that release less than their annual allotment (their cap) of greenhouse gases would be able to sell their excess emissions permits to companies that will exceed their emissions cap. Theoretically, this carbon trading system would reward companies that quickly and efficiently reduce their greenhouse gas emissions and encourage the larger emitters to meet their caps. Also in theory, this system would accomplish the national greenhouse gas reduction goal at the lowest possible cost to consumers.
The Profits: Without doubt, government auctions of emissions permits to companies unable to meet their carbon caps would generate significant revenue. Congressional Budget Office estimates place the income to the government of the cap and trade system at from $50 billion to as much as $300 billion per year. The bill allocates about 10 percent of the cap and trade revenue to offset the program’s costs to the affected companies. About half of the remaining revenue is allocated to help offset resulting energy price increases to low- and middle-income consumers. The remainder would be used to fund the development of renewable energy sources and technology contributing to the overall carbon-reduction effort.
Offsets – A Way Out for Gross Polluters?
The bill would also allow companies that are unable to either meet their greenhouse gas emissions caps or acquire enough emissions permits to literally “offset” their excess emissions by taking alternative measures, like preserving forest lands or planting acres of new trees that clean carbon dioxide from the atmosphere.
Opponents of the bill warn that potential abuse of this system through the government’s allowance of a multitude of environmentally worthless offsets could defeat the entire intent of the law.
How Much Will This Bill Cost Consumers?
Without a doubt, the U.S. consumer will have to share some of the financial burden of removing greenhouse gases from the whole world’s atmosphere. Without a doubt, power companies and other greenhouse gas emitters will pass some of what it costs them to comply with cap and trade on to their customers. There does, however, remain quite a bit of doubt as to how much this bill will actually costs consumers.
This becomes a costly game of “who do you trust?” Supporters of the bill quote figures from the nonpartisan Congressional Budget Office showing that increased energy bills resulting from compliance with the cap and trade system would cost the average American household about $175 a year through 2020. Opponents place the cost at as much as $3,000 per family per year. That estimate, however, includes costs associated with switching to more expensive, renewable energy sources, something not all power companies would need to do.
Somewhere in the Middle: Chances are the actual cost to consumers of the bill and its cap and trade system will fall somewhere in between the extremes naturally cited by its supporters and opponents.
According to a June 2009 EPA analysis of the American Clean Energy and Security Act, compliance with the bill’s cap and trade measure will cost American companies from $13 to $15 per ton of C02 emitted in 2015, increasing to as much as $19 per ton in 2020.
The Department of Energy’s Energy Information Administration places the total U.S. emission of combined greenhouse gases at about 9 billion tons per year. So, assuming a cost of $15 per ton for compliance, the bill represents a virtual tax on the public of about $135 billion per year. Spread out over the entire U.S. population of 300 million, the bill would cost every man, woman or child in the nation about $450 per year.