How can the Senate improve on consumer relief measures in its version of a cap-and-trade bill? During today's OnPoint, Robert Greenstein, executive director at the Center on Budget and Policy Priorities, explains the changes he believes should be made to consumer relief provisions as the Senate takes up climate legislation. Greenstein also gives his take on why allocating a larger number of free allowances to the electricity sector would not be beneficial to consumers.
Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Robert Greenstein, executive director of the Center on Budget and Policy Priorities. Bob, it's good to see you again.
Robert Greenstein: Good to see you.
Monica Trauzzi: Bob, your organization has been doing a lot of work, a lot of research on the impact of a cap and trade on low and middle income consumers and the House legislation that passed earlier this year took some steps to protect consumers. Now, as the Senate starts to take up this legislation, what changes are you hoping to see in their version on the consumer relief front?
Robert Greenstein: Well, the House bill does a very strong job of protecting low-income consumers and the Congressional Budget Office analysis found that it would be effective in that regard. What we're finding as we talk to people in the Senate where, as you know right now there are not the votes to pass the bill, is that many senators are desirous of having the consumer relief in the House bill broadened so that the direct consumer relief that goes to low-income households in the House bill can extend somewhat farther up the income scale to more moderate and middle-income households as well. There's a particular concern we're finding with what the Congressional Budget Office found to be one of the unintended effects of the House bill, that as a percentage of income to hit on middle-income consumers would be substantially greater than the hit on consumers at the top of the income scale.
Monica Trauzzi: And so what specifically needs to be done so that doesn't happen in the Senate version?
Robert Greenstein: Well, there's the easy part and the hard part. I mean the easy part is, it's not a mystery, you can provide a tax credit. You could have it start where, for example, the low-income relief in the House bill, which I hope and believe the Senate will retain, where that would end. And depending on how many resources you have available you extend some level of direct consumer relief to supplement the relief coming through the electric utility companies up to some level in the middle class. Not hard to figure out how to do that at all. The hard part is where do you get the money from to be able to afford some additional, moderate middle-income consumer relief? Which, if you could do it, would help facilitate getting the votes to pass the bill, but you have to be able to get the resources from somewhere. That's the hard part.
Monica Trauzzi: And this would mean scaling back on some of the deals essentially that were made for Waxman-Markey.
Robert Greenstein: Yes and what we're suggesting as the key place to look is scaling back in a portion, not the residential portion, but the business and industrial user portion, of the very large amount of funding given to the utility companies under the House bill. As you know, more than 40 percent of the total permit value would go to utilities and related home energy relief. And what a lot of people don't realize is that only about a third of that is for residential customers, about two thirds of it is for business and industrial users. In the analysis of the Congressional Budget Office Resources for the Future, our self and others is that the way the business and industrial relief is configured in the House bill, most of that relief would likely just end up in bottom line profits for firms, not get passed through to customers, the business' customers. You could redesign it so it's provided in a way that did get passed through to the customers, but then it would heavily undercut the price signal, would mean that the reduction in electricity use was much less. To hit the same cap that would require the cost of virtually every other form of energy that consumers use outside of utilities to go up more and would increase the overall burden on the U.S. economy. So the question is, can we scale back some of these extremely large amounts of not very well designed relief for the business industrial part that's going through the utilities and rechannel some of that money to direct relief to moderate and middle-income consumers? And hopefully not only both make the bill more efficient, RFF CBO analyses suggest it would, but also help allay these arguments that this is a hit on the middle class.
Monica Trauzzi: Utilities represented by the Edison Electric Institute believe that an even larger allocation of allowances should be given to the electricity sector. Would that have an overall negative impact on consumers if that was done?
Robert Greenstein: What's fascinating, although this is typical of Washington, is the Edison Electric Institute's letter that asks for this makes a series of claims and as is often the case in claims from trade associations to claims are either dubious or in some cases actually the opposite of the truth. So they say, for example, well, if you give more money to utilities that's going to really help consumers. Well, again, two thirds of the money that's going through the utilities under the bill goes to the business and industrial users and largely doesn't get passed through to consumers. And the analysis of the Congressional Budget Office Resources for the Future finds that the money that does go through the utilities is inefficient, that because it lessens the degree to which electricity use drops it causes the prices of all other energy products to rise more. So consumers get a benefit on the one hand, but some of it's taken back on the other and the overall hit to the economy is greater and were, for example, one to take money away from direct consumer release in order to channel it into more money to the utilities there would be a negative for consumers. The other part I found fascinating and simply misleading in the Edison Electric Institute letter was they said that the phase out under the House bill of the resources given to the utilities should be stretched out because when the money going through the utilities ended there would be an abrupt big hit on consumers. That's simply false. That's false. Under the House bill, as the money is phased out in future decades for the utilities, it goes dollar for dollar into a new climate change consumer fund that would directly put the money in consumers' pockets instead of some of it being given inefficiently and causing other energy prices to rise, a lot of it going to bottom-line business profits, which primarily affect shareholders of the firms which is why the people at the top of the income scale fared better under the House bill than people in the middle. Under the House bill, once you have the phase out the money goes directly to consumers and they gain from the transfer of money from the utilities directly into consumers' pockets. And the Edison Electric Institute letter never explains that if you extended for more years these huge amounts going to utilities that you'd be cutting back in those years the money going right to consumers and consumers would be net losers not winners.
Monica Trauzzi: And we will be having someone from EEI on the show later in the week and I'm sure that they will want to comment on what you're saying. Final question here, I want to sort of talk about the timing of things a bit with you because you are in touch, in close contact with committee members. Where do you see this going in the EPW and in finance? How far do things actually get this year?
Robert Greenstein: Well, like many others I have deep concerns. I do think the EPW Committee will be able to and will produce a bill through the committee sometime in the coming weeks, but the Finance Committee and the Senate floor aspects of this are now looking more distant. The Finance Committee is completely tied up in a moment in health care and health care is going to go on for weeks, maybe for several months. My impression is that the finance committee will not really be able to get in a big way to climate until it wraps up health care. And at the member level, at the Senator level I don't think the tough negotiations on climate in the Finance Committee have yet started. So the chances are now going down significantly that the Finance Committee will produce a bill before Copenhagen and I think the likelihood of a bill going to the Senate floor before Copenhagen is now very low.
Monica Trauzzi: OK, we'll end it right there. Thank you for coming on the show.
Robert Greenstein: Thank you.
Monica Trauzzi: And thanks you for watching. We'll see you back here tomorrow.
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