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U.S. Climate Legislation: Will it help or hurt our economy?

Printed in the Santa Rosa Press Democrat
July 3, 2009

If Congress passes climate legislation this year, it will likely initiate one of the largest transfers of wealth in American history – hundreds of billions of dollars over time. Who will benefit and who will lose? The answer depends on what approach Congress takes over the coming months.

Scientists are nearly unanimous in calling for immediate and dramatic reductions in manmade greenhouse gas emissions with the goal of cutting them 80 to 90 percent by the year 2050. The scale and speed necessary to reduce fossil fuel consumption, the primary culprit in global warming pollution, to this level is staggering. We need to fundamentally restructure our energy infrastructure and realign our economy.

Last week the House of Representatives narrowly passed a piece of legislation called the American Clean Energy and Security Act (ACESA). This complex bill of over 1200 pages is the result of wheeling and dealing in the House, with key provisions being weakened as it made its way to the floor. Although the bill has many positive features, at its heart is a flawed cap and trade scheme.

Cap and trade creates a cap on the maximum amount of greenhouse gas that may be emitted in the atmosphere. The cap slowly lowers over time. Permits to pollute up to the limit of the cap are either sold or distributed to companies that bring fossil fuels into the economy. Companies that do not need to use all their permits can sell them on the market to less efficient companies.

For this mechanism to be effective, 100 percent of these emission allowances must be auctioned to polluters. Unfortunately, ACESA would give away 85 percent of the permits, with 22 percent going to coal, oil and energy-intensive industries like cement and aluminum. Six-hundred economists signed a letter warning that giving free permits will create windfall profits for companies. A recent EPA analysis concludes that free permits raise the cost of implementing a carbon cap significantly and disportionately impact middle and low income people. Obama’s Budget Director Peter Orzag has called free emission rights “corporate welfare.”

Selling emission permits will generate hundreds of billions of dollars. What is the best use of this revenue? We believe that the answer is plain. Because the sky belongs to all of us, these funds should be directly transferred to the American people.
The public is going to need the money to contend with higher energy prices. A study done by the Congressional Budget Office showed that a 15 percent reduction in carbon emissions will cost the average family $1161 a year in increased energy costs. ACESA resolves this problem by allocating 30 percent of the revenue to local utility companies and requiring them to keep energy prices low to help consumers. This is an unnecessarily complicated approach of dubious efficacy. It will keep the cost of dirty energy like coal low. The opposite should happen: Fossil fuel prices need to rise to reflect their true cost. Moreover this will accelerate the development of renewable energy like solar and wind at the speed and scale needed.

If ACESA becomes law, the fossil fuel industry wins and people and the planet lose. Fortunately there is an alternative. Congressman Chris Van Hollen introduced a  Cap and Dividend bill that will cap carbon emissions, auction 100% of the permits and rebate all the money as dividends to the American people. Both Reps. Mike Thompson and Lynn Woolsey are co-sponsors of Van Hollen’s bill. This bill would shift private investment into renewable energy, protect consumers and create millions of new green jobs without additional government spending.

Optimally the cap and trade provisions in ACESA will be replaced by Cap and Dividend, an approach recently endorsed by the editors of Scientific American magazine. We suggest urging Senators to adopt Cap and Dividend. Otherwise hold on to your wallet and prepare for a massive transfer of wealth from taxpayers to large corporations.

Barry Vesser
Deputy Director
Climate Protection Campaign