The Debate Over the Costs of the Clean Energy Jobs and American Power Act

After the first day of Senate hearings on the Boxer-Kerry bill, fault lines have begun to emerge among legislators. However, differences have not fallen along traditional party lines. Rather, a loosely-formed coalition of moderate Democrats, those members primarily from manufacturing states and rural states, and the committee’s Republicans have begun to voice their skepticism over this piece of legislation. The initial concern among these legislators is the associated costs.

It should be of no surprise that the debate over the bill’s costs remain a point of contention among legislators. The back-and-forth, and deal-making, over the costs have persisted all summer–since the passage of the Waxman-Markey bill in the House of Representatives. Currently the EPA estimates the cost of the Boxer-Kerry bill to be in line with earlier estimates of the Waxman-Markey bill, which comes to about $100-$175 per family over the course of a year. For proponents of the legislation, this seems straightforward. Yet, critics contend the cost estimates presented are too rosy: Costs are watered down in the early years of the bill’s implementation as a means to appease Democrats in rural and manufacturing states; costs are then increased in later years as result of tighter caps on emissions. So, the full financial impact of the bill on households is not realized until post-2020, which is the end year used by CBO. (Critics do have a point. Emissions targets start out gradually, 66% of 2005 levels by 2012-13, and then increase to 86% of 2005 levels in 2016. Therefore, the major emissions targets begin to take effect by 2020 and thereafter.)

By 2020, with emissions standards being set back to 2005 levels, companies will then have less opportunities to “offset” their emissions, assuming there are no additional technological innovations during this time period for lowering emissions. As a result, the price of permits would be expected to exceed the CBO estimate of $28 per tonne of carbon; Yale economist William Nordhaus estimates it to be at least $34 per tonne.  The increase in the cost for companies to purchase permits would then be passed on to consumers. This is what critics claim is an energy tax on households, which could be up to a few thousand dollars a year. I will say that these concerns among critics are real, assuming there are no technological advances to better handle emissions. I would prefer if Congress set a reasonable bill that dealt with the costs in the near term rather than simply “kicking the can” down the road for future generations. I also have concerns about the bill meeting intended emissions targets.

From what I have read so far on the bill, it is not ideal in dealing with climate change: 85% of the pollution permits required in this bill have been given away and the remaining 15% will be auctioned. I have two problems with this strategy. First, it transfers public assets to private entities, and second it does not raise enough money to pay for itself. Also, my concern that the baseline of 2005 emissions levels may be too little, too late, when nations such as Sweden and Great Britain have sought to reduce their levels to 1990 levels. Nonetheless future comments and analysis will have to wait as more of the bill’s details become public.


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