On Thursday, the Congressional Budget Office issued its cost estimate of
the Lieberman-Warner Climate Security Act, finding it would create a
$1.2 trillion cap-and-trade market through 2018 in carbon allowances,
$946 billion of which in the form of corporate giveaways that would
become windfall profits. Because of the failure of the legislation to
account for the effect of the system on receipts from income and payroll
taxes, the CBO estimated that the bill would
generate a $15 billion budget deficit over the first ten years, with
greater than $5 billion in deficits each decade following.
Because ownership of the allowances is not limited to emitters, the
CBO interpreted the emissions allowances as
the equivalent of a revenue-generating tax. Allowances given away are
interpreted as “direct spending” – that is, revenues lost (“CBO
considers the distribution of such allowances at no charge to be
functionally equivalent to distributing cash”). Assuming enactment of
the bill at the end of 2008,
CBO estimates that implementing this
legislation would result in additional revenues, net of income and
payroll tax offsets, of $304 billion over the 2009-2013 period, and
about $1.19 trillion over the 2009-2018 period. We estimate that
direct spending would increase by $281 billion and about $1.21
trillion over the same periods, respectively. Those changes in
revenues and direct spending would stem almost entirely from the
process of auctioning and freely distributing allowances under the
cap-and-trade programs established under this legislation.
Over 78% of Market’s Value Dedicated to Polluter Giveaways Of the
$1.2 trillion market, $260 billion is auctioned and $946 billion freely
given to covered emitters. Because the CBO
estimates that most of the cost of emissions reduction “would ultimately
be passed on to consumers in the form of higher prices for energy and
energy-intensive goods and services,” the $946 billion in emitter
giveaways would become windfall profits. The effect on consumers is the
same whether the allowances are given away or auctioned.
Banking’s Effect – Faster Reductions Up Front, Higher Allowance
Value Furthermore, the CBO estimates that
the unrestricted ability to “bank” emissions allowances (allowances
distributed in one year may be redeemed at any time in the future) would
encourage companies to attempt to “undertake significantly more
mitigation than necessary to meet their annual emission caps” in early
years because of the initially low allowance price and an expected rate
of return “significantly greater than CBO’s
estimate of the expected long-run inflation-adjusted rate of return to
capital in the U.S. nonfinancial corporate sector,” raising the price by
about 27 percent higher than a no-banking policy over ten years.
Lion’s Share of Auction Revenues Go to Privately Controlled R&D The
CBO estimates that in the first decade $123
billion, 47% of auction revenues, would go to the Climate Change Credit
Corporation to allocate as it sees fit within its mission of funding
industrial research and development – the corporation is set up as a
private entity with a board selected by Presidential appointees.