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Cap-and-Trade Moves to the Senate

on July 01, 2009 Source: Policy Dialogue on Entrepreneurship

Recently, the House of Representatives narrowly voted (219 to 212) in favor of the gargantuan H. R. 2454, the American Clean Energy and Security Act, sponsored by Representatives Henry Waxman of California and Edward Markey of Massachusetts.

At the heart of this over 1,200-page legislation is a cap-and-trade measure to limit emissions of carbon dioxide and other green house gases. President Obama is fond of saying that the bill “will finally spark a clean energy transformation that will reduce our dependence on foreign oil and confront the carbon pollution that threatens our planet.”

However, the debate over the legislation’s cost--and effectiveness--continues. Supporters cite new studies from the Congressional Budget Office (CBO) and the Environmental Protection Agency (EPA) that found that the bill would bring relatively small increases in household energy prices. The CBO numbers claim that the cap-and-trade provision of the bill would cost the average household $175 a year in higher energy costs by 2020, while the lowest-income homes would see their energy bills actually fall by $40 a year by 2020 because of rebate provisions. The EPA in turn found that the bill’s overall cost to the average household would be $80 to $111 a year in 2020. This study also contends that utility bills in 2020 would be roughly 7 percent lower than if there were no change in law due to the legislation’s efficiency provisions.

Supporters also say that the legislation will create millions of new “green” jobs in the production and distribution of cleaner energy and in energy conservation technology. Opponents to the bill, on the other hand, claim that it would effectively impose a national energy tax that would eliminate jobs and cause large energy price increases, leading to long-term economic decline.

In a recent interview, President Obama spoke about another potential problem with the House bill: it contains a provision, inserted the night before the vote, that requires the President, starting in 2020, to impose a tariff on certain goods from countries that do not act to limit their emissions. The president can waive the tariffs only if he receives explicit permission from Congress. This measure aims to add a manufacturing cost advantage to enacting a cap-and-trade system here. In the interview, Obama explained that such trade sanction would be counterproductive for the U.S. economy. The President also acknowledged that the bill’s initial targets for reducing harmful emissions are modest, and said that he hoped to build on those modest first steps in crafting a more robust program in the future.

Another point of contention is the degree to which the bill applies future revenue to clean energy innovation. For example, a recent report issued by the Brookings Institution argues that pricing and regulatory responses won’t by themselves catalyze the decarbonization the world economy. That would also require large government research interventions in favor of radical scientific and technological research breakthroughs and their commercialization.

While eventually passed by the House, the bill didn't come without a struggle--44 Democrats voted against the measure while only 8 Republicans crossed the aisle. Wrangling is sure to continue as action moves to the Senate.

Category:  Capitol Hill  Energy  Tags:  waxman, markey

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