Waxman-Markey bill would add $846 billion in taxes, CBO says

A US House bill which would introduce a domestic cap-and-trade program to begin controlling global carbon emissions would cost $846 billion in new taxes, the Congressional Budget Office said on June 5.

The bill’s net contribution to the federal budget would be about $24 billion because it also would increase direct federal spending by $821 billion, CBO said in its analysis of HR 2454, the 2009 American Clean Energy and Security which the House Energy and Commerce Committee approved on May 21 by 33 to 25 votes.

“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 funding would stem from spending auction proceeds for various fundsauthorized under this legislation.”

It 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.

CBO’s study confirmed that the bill, 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, would be “massively costly,” American Petroleum Institute President Jack N. Gerard said on June 8.

“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,” he said in a statement.

‘A job-killer’

Gerard said that based on allowance costs in CBO’s study, impacts could be as much as 77 cents/gal for gasoline, 83 cents/gal for jet fuel, and 88 cents/gal for diesel fuel. “This is what happens when market-based regulation is abandoned in favor of picking winners and losers. Putting most of the burden on one sector also helps explain why this legislation promises to be a job-killer,” he maintained.

But Waxman said as he opened a June 9 hearing on the bill’s offsets 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 also 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 in his opening statement that it’s not possible to design an allocation for an economy as complex as that of the United States. “You really can’t make it fair,” he declared.

May undermine goal

A group of larger US independent producers, meanwhile, warned on June 8 that the bill includes provisions which undermine its goal of reducing greenhouse gases by possibly discouraging natural gas use. “Specifically, the allowance allocation formula in the bill could eliminate the incentive to burn fuels with a lower carbon content for power generation,” said Rod Lowman, president of America’s Natural Gas Alliance, which represents 25 upstream independents producing more than 40% of total US gas supplies annually.

HR 2545 would initially distribute for free 50% of its utility allowances based on the utility’s average annual carbon dioxide emissions from retail electricity sales, Lowman continued in a letter to the committee and subcommittee’s chairmen and ranking minority members. This provides a disincentive for utilities to buy their electricity from generators who use gas or other cleaner fuels, he suggested.

“We believe allowance allocations should instead reward utilities that acquire their power from fossil fuel generators that have the lowest CO2 emissions per megawatt hour and are also the most efficient (e.g., require the least amount of energy to produce electricity),” said Lowman.

“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 [email protected]