At this morning’s House Global Warming Committee hearing on Auctions and Revenue Recycling in Cap and Trade, the witnesses presented some of the first Congressional testimony on the economic implications of a greenhouse-emissions cap and trade system such as the one proposed in Lieberman-Warner (S. 2191).
A summary of some of the analysis presented in the written testimony:
- Power generators will raise prices the same whether allowances are given away for free or are auctioned, because the price is set by the limitation in supply (the cap)
- Investment in energy efficiency provides greater immediate taxpayer return than technology investment
- Because power generators are free from competition they don’t need any protection through free allowances
- A European Commission analysis found no macroeconomic negative impact of moving their cap-and-trade system to full auction
- Free allocation to load-serving entities is a subsidy to electricity consumption, which leads to an increase in allowance prices and requiring greater decreases from other sectors
- The “virtual tax” a cap-and-trade system imposes can be greatly alleviated if revenues are used to reduce pre-existing taxes
- To fully offset the costs on the electricity sector through free allocation of allowances would cost the government 2.5 to ten times the value of the economic harm to the emitters, depending on whether the free allowances are narrowly targeted (15% of sector allowances) or nationally distributed (65% of sector allowances)
- To fully offset the costs on the poorest 20% of the American public takes about 14% of total revenues of a 100% auction system
Excerpts from the testimony related to the above points are below the jump.