I find the article unclear on this point. It says, "The bulk of that [$846 billion] — $693 billion — would be given away as free permits to companies and states to ease costs." OK, one wonders, if permits are given away for free, how can they furnish part of the $846 billion in generated revenue?
Also dicey is this sentence: "The amount of permits that will be sold will increase over time and they will become more expensive, generating $846 billion from 2010-2019 ... ." It is my understanding that the amount of permits will decrease over time, not increase. The "cap" part of "cap and trade" is expressed basically as the number of permits issued, with each permit representing (say) one ton of carbon dioxide, or its climate-changing equivalent, that is released into the air. As the years roll by, the cap is supposed to shrink. That means the number of permits issued must shrink, too — which is basically the only way that "they will become more expensive," by the law of supply and demand.
I'm guessing that the implication is this: Waxman-Markey would start out by giving away fully 85 percent of the carbon-pollution permits but, as time goes on, that percentage would go down, and the percentage of permits that are sold would go up ... a phased-in approach, possibly. I'll have to look further into this ...
Anyhow, the article goes on to say, "The remainder [of the $846 billion generated over 10 years] will pay for research, the energy tax credits and rebates, and a worker assistance program that will provide benefits including lost wages and health insurance to people who lose their jobs because of the limits placed on global warming pollution."
What's going on here?
As it says in Sightline Institute's Cap and Trade 101: A Climate Policy Primer, a regional or national cap-and-trade climate policy, unmodified by tax credits and rebates, would dump more of its cost burden on lower-income people than on middle- and higher-income folks: it would, in the language of economists, be highly "regressive."
Why so? Those in the lowest (say) two-fifths of the income (or household spending) ladder pay more, percentage-wise, for energy costs — home heating, electric bills, gasoline, etc. — than richer households do. What's more, they spend (rather than save) a greater percentage of their disposable income on all that they buy, whether or not it's directly associated with energy consumption. Their groceries, for example, are trucked into their area by big rigs burning diesel fuel, whose costs will go up under cap and trade. So the little folks' grocery bills (including those of the big rig drivers) will go up, too, because they include a new tax — though one that is, effectively, hidden — on carbon.
But, the article says, Waxman-Markey offers rebates only below the relatively paltry $23,000 income level for individuals and $42,000 for families. Is that going to be enough help for the poorer folks among us?
Per the article:
Various studies by the federal government, universities, and think tanks have found that the average household could pay an extra $98 to $1,600 a year for electricity, gas and other goods that need energy to be produced if the government requires mandatory reductions in heat-trapping gases. Lower-income households are likely to feel the burden more because they spend a greater percentage of their income on energy.
That's another instance of bad reportage in the article, since it leaves the impression that Waxman-Markey might cause a relatively petty increase in our electric bills — $98 — or it might boost our bills by a whopping $1600. Something of a crap shoot, in other words.
One problem here is that such a wide range of studies is referred to in the article. A key study by the Congressional Budget Office, "Trade-Offs in Allocating Allowances for CO2 Emissions," has it that (see its Table 1) a cap-and-trade plan that cuts emissions slightly less than Waxman-Markey (15 percent by 2020, rather than 17 percent) would give households in the lowest one-fifth by income a $560-per-year "hit" in terms of extra expenses (expressed in year-2000 dollars). The remaining four income quintiles, in order from lowest to highest, would pay $730, $960, $1,240, and $1,800 extra a year.
For the five quintiles, from lowest to highest, those figures represent expenditure increases, as percentages of income, of 3.3, 2.9, 2.8, 2.7, and 1.7 percent, respectively. Though the highest-income fifth of us would take a much bigger hit than everyone else when measured in dollars, when measured as percentage of income, their hit would be much lower than that of the rest of us.
Still, households at all levels would seemingly take big hits under cap and trade. Why? One reason is that the cost of the permits — is it "$846 billion from 2010-2019"? — will get passed along from (per the article) "companies operating 7,400 facilities nationwide, including power plants, refineries and factories" to (eventually) you and me, in the form of higher rates for electric power, pricier gasoline, and the like.
Now, the article isn't clear on whether the $846 billion is the amount of money auctioning off the permits (those that aren't given away for free) would bring in as direct revenue over ten years. Or, it could be an estimate of the eventual market value of the permits, taken in toto, whether originally sold or given away.
That's right: however much or little the original recipients have to pay for the issuance of permits, what really counts is how much the entities that eventually use them have to pay, at going market rates, at the time that they are used. Those permit-utilizing entities will be big players in the energy economy that are directly or indirectly responsible for producing the carbon emissions that are capped under cap and trade. A coal-fired electric utility emits carbon directly; an oil refinery produces fuels that eventually get burned; the refinery is an indirect polluter. These entities will both need to buy, then use, permits to cover their carbon footprints.
These big guys are the so-called "upstream" carbon polluters. They'll sell whatever it is they produce to, not just households, but corporations, businesses, private institutions, and government agencies — the multifarious "downstream" sources of our nation's carbon pollution. And, experts say, most of the upstream sources' permit costs will float downstream as well. These costs will show up (often in hidden fashion) on every bill that every entity in the economy pays.
This is a crucial point about cap and trade. One of the two main points of the exercise is to send a "price signal" to upstream and downstream polluters alike, saying that it's no longer possible to "dump" carbon into the atmosphere for free.
The other main point? It's to set a firm (and shrinking) limit on the amount of carbon that gets dumped in the first place.
But lots of carbon will still get dumped. That dumping will come, though, for the first time, at a cost.
Yes, most upstream or downstream polluters will (not so gladly) pay that cost, in order to keep from undergoing super-fast changes to our lifestyles, ways of making a living, and ways of doing business.
At the same time, most carbon polluters will start looking for new ways to conserve and economize — to stop wasting energy, and thus to lower the bills which cap and trade has inflated.
At some point, it will become harder and harder to find ways to cut back while still preserving our reliance on carbon-based energy. It will become more attractive, from strictly a dollars-and-cents point of view, to see about switching to alternate, renewable, sources of energy: solar, wind, hydro, geothermal, and so forth.
As the Sightline primer mentioned above points out, making the switch would wind up lowering the cost of carbon permits — not as many permits would be needed, after all is said and done, as originally anticipated — which would moderate the adverse effects of cap and trade on our cost of living.
The "17 percent reduction in greenhouse gases by 2020, and ... 83 percent cut by mid-century" that Waxman-Markey looks for, per the AP article, would very likely not be as expensive in the long run as current news coverage might indicate!
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