House cap-and-trade bill would trim budget deficit -- CBO

The House global warming bill slated for floor debate this summer is projected to trim the federal budget deficit over the next decade, the Congressional Budget Office states in a report released Friday.

CBO's scoring of H.R. 2454 projects the bill's requirement that companies reduce their emissions or purchase allowances on an open market would bring in federal revenue of about $845.6 billion during the first decade of its operation. By contrast, federal spending is expected to increase by $821.2 billion, meaning the Treasury can expect a $24.4 billion net gain.

An estimated 7,400 industrial facilities would face emissions restrictions under the bill, including electric utilities, petroleum refineries, natural gas distributors, and producers and importers of hydrofluorocarbons. According to CBO, the bill would cover about 72 percent of U.S. greenhouse gas emissions in 2012, ramping up to about 86 percent in 2020.

The House Energy and Commerce Committee approved the bill last month, and it now must go through at least eight other committees before reaching the floor, perhaps as early as the week of June 22. House Democratic leaders say they want to pass the legislation, which orders a 17 percent cut in greenhouse gas emissions by 2020, before the August recess.

CBO's study offers a useful set of figures for lawmakers already deep into debate over whether an economic recession is the right time to move major environmental legislation. Opponents argue Congress should not be burdening Americans with additional expenses while advocates counter that the measure will help stimulate the economy by promoting development of new low-carbon energy technologies.


Under the legislation, CBO predicts regulated industries would enter into a new carbon market that exceeds $60 billion by the first compliance year in 2012. CBO also estimated firms would be purchasing greenhouse gas allowances at about $16 per ton in 2012, rising to $26 in 2019. The office projects that a separate regulated market for HFCs would reach $2 per ton in 2012, rising to $20 per ton in 2019.

To help lower compliance costs, companies under the House bill can fund environmentally friendly projects both domestically and abroad in lieu of making cuts in their own emissions, though there is an annual limit of up to 2 billion greenhouse gas allowances (1 billion domestic and 1 billion international).

But in 2020, CBO estimates that companies would buy about 300 million allowances on the domestic market and about 425 million allowances internationally. Still, CBO said the offset clause would decrease the compliance price significantly for greenhouse gas allowances by $35 per ton in 2012.

CBO's spending and revenue projections differ from the figures included earlier this year in President Obama's budget proposal to Congress. There, the administration assumed nearly $650 billion between 2012 and 2019 in new government revenue based on a 100 percent auction of emission allowances starting in the cap-and-trade program's first year. Obama also would have used about $60 billion per year to pay for a middle-class tax cut and another $15 billion per year on "clean" energy technologies (E&E Daily, Feb. 26).

The House climate bill took a different approach on allowance allocations after key Democrats balked at following Obama's strategy. The bill gives away more than three-quarters of the allowances for free during the program's opening years while auctioning only 18 percent of the allowances until about 2020. The auction gradually increases to about 70 percent of the allowances in 2031.

Price tags

The CBO report also puts dollar figures on a number of other provisions -- big and small -- included in the House climate bill.

For example, the distribution of allowances via an auction would generate $254 billion for the Treasury between 2010 and 2014, and about $858 billion over the next 10 years, CBO says. Giving credits away for allowances will cost about $693 billion from 2010-2019, though the legislation stipulates that states, local electric distribution companies and other organizations that receive the allowances must use their receipts on programs that compensate low-income consumers, encourage energy efficiency or other government initiatives.

Elsewhere, the government would see about $1.1 billion less in revenue between 2010-2019 as businesses ramp up their electricity production through renewables, making them eligible for new tax credits.

The poorest individuals and families also are slated for tax breaks under the climate bill to help offset higher energy prices, with a $161 tax credit for a single person earning less than $23,000 and about $359 for a five-person household. CBO estimates $28 million less in federal revenues from gasoline taxes because of a provision that pays people to trade in their older cars for more fuel efficient alternatives.

And the Treasury can expect between $25 million and $50 million per year starting in 2012 from companies who do not meet their compliance obligations on time. The Commodity Futures Trading Commission would collect about $800 million between 2010-2019 to help recover costs from the regulation of a carbon futures market.

On the spending side, CBO estimates that about $19.3 billion will be credited into a new Treasury account to help the Energy Department and U.S. EPA with reductions in HFCs through better appliance purchases, as well as recycling and reclamation. Another $5.3 billion would go into a Treasury fund for national resource adaptation activities, while $900 million gets sent primarily to the Department of Health and Human Services to assist health professionals as they gear up for the challenges associated with climate change.

Other new spending priorities include about $4.3 billion from 2011-2019 for a new Labor Department benefits, job training and health insurance program to help workers who lose their jobs because of the climate law.

For comparison, Senate legislation defeated last June on the floor carried CBO projections of $78 billion to help trim the federal deficit over 10 years. The bill sponsored by Sens. Joe Lieberman (I-Conn.), John Warner (R-Va.) and Barbara Boxer (D-Calif.) would have increased government revenue by about $1.21 trillion between 2009 and 2018, while direct government spending over the same time period totaled $1.13 trillion (E&E Daily, April 11, 2008).

Click here to read the CBO scoring of H.R. 2454.

Click here to read the CBO scoring of the Senate legislation from last year.

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