CBO says HR 2454 would add $846 billion in taxes

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, June 10 -- A US House bill that would introduce a domestic carbon emissions cap-and-trade program would cost $846 billion in new taxes, the Congressional Budget Office said on June 5.

CBO analyzed HR 2454, the 2009 American Clean Energy and Security. The House Energy and Commerce Committee approved HR2454 on May 21 by 33 to 25 votes.

The bill’s net contribution to the federal budget would be about $24 billion because the bill would increase direct federal spending by $821 billion, CBO said.

“In addition, assuming appropriation of the necessary amounts, CBO estimates that implementing HR 2454 would increase discretionary spending by about $50 billion over the 2010-19 period,” it indicated. Most of that would come from auction proceeds outlined in the bill.

CBO also said that mandates under the bill would exceed thresholds under the Unfunded Mandates Reform Act by $139 million for private sector entities and $69 million for intergovernmental outlays in 2009.

American Petroleum Institute President Jack N. Gerard said on June 8 that the analysis confirmed the bill would be “massively costly.”

“The $846 billion price tag on emission allowances, borne disproportionately by oil consumers, will drive up costs of producing and refining gasoline, diesel, and other fuel products while doing nothing to protect fuel consumers, including American families, trucking, the airlines, the construction industry, and many other businesses that rely on oil to make or transport products,” Gerard said.

API: ‘A job-killer’
API said that based on allowance costs in CBO’s study, impacts could be as much as 77¢/gal for gasoline, 83¢/gal for jet fuel, and 88¢/gal for diesel fuel.

“This is what happens when market-based regulation is abandoned in favor of picking winners and losers,” Gerard said. “Putting most of the burden on one sector also helps explain why this legislation promises to be a job-killer.”

The bill was cosponsored by Reps. Henry A. Waxman (D-Calif.), chairman of the Energy and Commerce Committee, and Edward J. Markey (D-Mass.), chairman of the committee’s Energy and Environment Subcommittee.

While opening a June 9 hearing on the bill’s offsets, Waxman said that it uses more than half of its allowances to protect consumers from higher energy prices with programs for electricity, natural gas, and heating oil users, for low and moderate-income families, and to provide rebates to consumers.

HR 2545 invests in developing and deploying energy efficiency programs and clean energy technology, which will create jobs, he continued. It also provides transition assistance to US industries to assure that they stay globally competitive, he said.

“The committee has worked hard on this allocation plan to ensure that it is fair. It does what a good energy bill needs to do. It balances the interest of different parts of the country, and of different stakeholders, and accomplishes much of what is important to everyone. It will go a long way to moving the country into a clean energy future,” Waxman said.

But the committee’s ranking minority member, Rep. Joe Barton (R-Tex.), said that it’s not possible to design an allocation for an economy as complex as that of the US. “You really can’t make it fair,” he declared.

More industry reaction
A group of larger US independent producers warned on June 8 that the bill includes provisions that undermine its goal of reducing greenhouse gases by possibly discouraging natural gas use.

Rod Lowman, president of America’s Natural Gas Alliance said, “The allowance allocation formula in the bill could eliminate the incentive to burn fuels with a lower carbon content for power generation.”

HR 2545 initially would distribute for free 50% of its utility allowances based on the utility’s average annual carbon dioxide emissions from retail electricity sales, Lowman said. This provides a disincentive for utilities to buy electricity from generators using gas or other cleaner fuels, he said.

Lowman said allowance allocations should instead reward utilities that acquire power from fossil fuel generators that have the lowest emissions per megawatt hour and are also the most efficient.

“The allocation policy for allowances should complement the bill’s environmental goals, not cancel out the distinction between high and low carbon fossil fuels for generating electricity. Such an approach to us seems counterproductive,” he said.

Contact Nick Snow at nicks@pennwell.com.

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