Sweeping climate-energy bill clears first big hurdle in Congress

Cost has been a major debating point. Rep. Joe Barton (R) of Texas, in a letter to Waxman this week, warned that the bill will “impact every person, every family, and every business” to the tune of “trillions of dollars.”

Others say the cost will be far less. Abatement costs would reach $22 billion in 2015, rising to $31 billion in 2020 and then up to $64 billion in 2030, the Environmental Protection Agency estimated last month. This would slightly curtail average annual US economic growth from 2.71 percent to 2.69 percent. The cost per household is estimated at $98 to $140 per year, the EPA says, although Republican critics say it would be far higher.

The EPA looked at the numbers again this week, concluding that final costs will be reduced by the compromise to achieve a 17 percent (instead of 20 percent) emissions cut by 2020. That change, EPA said in a memorandum, would “likely result in lower allowance prices, a smaller impact on energy bills, and a smaller impact on household consumption” – although it would mean “a somewhat higher use of coal in 2020.”

Costs tied to economic growth

Others note that overall costs will be minuscule relative to the size of the economy. By the time abatement costs reach $64 billion a year in 2030, the US economy will have grown more than $9 trillion – about 150 times the amount spent on CO2 abatement, NRDC economists say.

What happens to the valuable allowances in the cap-and-trade program – worth more than $600 billion, ClearView estimates – is a critical question. President Obama has long proposed auctioning all of the emissions allowances to avoid a windfall for polluters, as occurred in Europe.

But to win enough congressional support, the bill doles out some 85 percent of the allowances for free (with just 15 percent auctioned), ClearView calculates. The point of most free allowances is to blunt the impact of higher energy prices on households and energy-intensive industries.

For instance, in 2012 when the cap kicks in, electric utilities would get 35 percent of allowances – though the bill requires utilities to pass the benefit along to consumers. By 2020, however, the percentage of auctioned allowances would rise to 90 percent.

“The vast majority of these allowances are being distributed for purposes that make sense,” says NRDC’s Mr. Lashof. “The allowances going to electric utilities require those companies to use their value to benefit customers, and the result of that, in our analysis, is that consumer energy bills will actually decline under this bill.”

Indeed, 15 percent of the value of allowances would go to low- and moderate-income households to defray higher energy costs. But energy-intensive industries such as steel, cement, pulp, and paper would also get 2 percent of the allowances to soften the blow from competition by foreign rivals that don't have emissions requirements. Refineries would get 2 percent of allowances.

If the ACES bill passes the House, as Lashof and others predict, all eyes will fall on the Senate, where companion legislation is under way. Whether Republicans will be able to filibuster there is an open question.

“This puts a lot of pressure on the Senate and makes it much more likely that the president will have a climate-energy bill to sign this year,” says Book of ClearView.

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