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July 9, 2010

Climate and Energy Bill would not add to deficit, says CBO

John Kerry said he hoped opponents worried about adding to the deficit would now support his climate and energy bill

The Congressional Budget Office has said climate and energy legislation proposed by Senators John Kerry and Joe Lieberman would bring in more money than it costs.

The CBO wrote to Senator Kerry on Wednesday to lay out its estimates of the costs and the benefits of the American Power Act, which seeks limits on the emission of greenhouse gases by certain industry sectors.

The federal agency tasked with supplying economic data to Congress based its estimates on a $14 per ton price of emissions allowances in 2012, rising to $25 by 2020.

It said the overall revenues from selling emission allowances to the power industry and other select sectors, as well as penalties for noncompliance, would amount to $751 billion over 10 years.

Costs from handing out free allowances to the transport fuel sector, US states and agencies – along with incentives for nuclear power plants and tax credits to help households cope with rising utility bills – would cost $732 billion up to 2020, said the CBO.

Although officials pointed out that incentives for nuclear power plants and from sharing out oil drilling leasing income with state authorities would see an $8 billion increase in the federal deficit in the first four years, overall the decade would see a decrease in the deficit by $19 billion.

The CBO also said the four decades after 2020 would not add to the deficit either.

In a joint statement responding to the CBO’s opinion, Senators Kerry and Lieberman said it sent Congress a “powerful message” that their energy and climate bill would “slash” American’s deficit by over $19 billion.

The Senators said: “There is no more room for excuses – this must be our year to pass comprehensive climate and energy legislation and begin to send a price signal on carbon.

“Many of our colleagues have said they flatly oppose anything that adds a penny to the deficit, so we hope they look anew at this initiative which reduces it,” added the Senators.

Cap and trade

The Senators from Massachusetts and Connecticut are currently attempting to gain the votes they need for their bill, which centers around two cap-and-trade programs to limit industry emissions of greenhouse gases and hydrofluorocarbons.

The cap and trade schemes would limit emissions from power plants from 2013 and certain other industry sectors from 2016. Companies that cannot meet their emission limits would be able to buy surplus allowances from other companies or the general market.

As well as buying allowances, companies would be able to buy “offsets” from domestic or international environmental projects to cover their emissions.

There is no more room for excuses – this must be our year to pass comprehensive climate and energy legislation” - Senators Kerry and Lieberman

At some point in the future, possibly from 2021, importers could also be required to hold allowances covering the carbon in fossil fuels being brought into the country.

Under the terms of the American Power Act some allowances would be auctioned off, while others would be handed out for free to states, agencies, natural gas distributors and some set aside to cover transportation fuel distribution.

Households would be protected to a certain extent from rising utility bills with a new tax credits system under the legislation.

The bill would also provide funds to help develop carbon capture and storage technologies – systems to absorb emissions from power plants or industry – through a new Carbon Storage Research Corporation.