Environmentalists Say ‘Cap-and-Trade’ Is Designed to Drive up Energy Costs and Redistribute Wealth

By Edwin Mora | April 16, 2009 | 7:39 AM EDT

Reps. Henry Waxman and Ed Markey are sponsors of cap-and-trade legislation.

(CNSNews.com) - President Obama’s “cap and trade” plan to reduce greenhouse gas emissions is specifically designed to drive up energy prices and redistribute wealth, according to a coalition of environmental, union, and liberal activist groups that is pushing for Congress to enact the proposal this year.
The plan would also redistribute wealth by taking revenue earned by the government in auctioning off carbon-emission permits and giving some of it in rebates to lower income households to offset the increased energy prices they would pay. The rest of the revenue would be used to subsidize the development of alternative “green” energy sources.
“The purpose of the cap, the way it works, is that you are capping fossil fuel energy--you’re limiting the supply to a lower level than would otherwise be used,” Robert Greenstein, executive director of the Center on Budget and Policy Priorities, told CNSNews.com last week. “Demand then has to fall to meet that level of supply at the cap level and demand falls by virtue of prices rising--this is basic economics.”
Greenstein’s group is a member of the Climate Equity Alliance, which is made up of more than a dozen organizations ranging from the NAACP (National Association for the Advancement of Colored People) to ACORN (Association of Community Organizations for Reform Now).
The alliance held the conference call with reporters on April 8 to endorse a cap-and-trade bill now circulating in Congress, and to suggest how to spend the expected billions of dollars it would generate.
A draft of the bill, sponsored by House Energy and Commerce Chairman Henry A. Waxman (D-Calif.) and Energy and Environment Subcommittee Chairman Edward J. Markey (D-Mass.), includes a cap-and-trade program aimed at reducing greenhouse gas emissions.
Under cap-and-trade, the government would set a limit--or “cap”--on the amount of greenhouse gases that a company could emit. A firm would be required to have an “emissions permit” for every ton of carbon dioxide it released into the atmosphere. Companies that reduce their emissions below the cap can sell their excess allowance to companies that are not able to make reductions.
Greenstein told CNSNews.com that cap-and-trade is “supposed to” increase energy prices, and that skyrocketing electricity bills will, in turn, drive consumers to alternative forms of energy.
“The higher price for fossil fuel energy creates very powerful incentives for conservation, for efficiency with the appropriate investments . . . and for shifting to alternative greener sources of energy,” he said.
Greenstein said that although alternative forms of energy are costly now, they will in time “become less costly” under an emissions cap.
“The key, though, is that if the permits are auctioned, the revenue that is produced can offset the impact on consumers’ budgets through rebates,” he said.
The Climate Equity Alliance focuses on promoting climate legislation that caters to low- and moderate-income energy consumers-and believes that funds collected from cap-and-trade proceeds should go to curb high energy costs for those consumers and for other green projects.
Greenstein said a 15 percent reduction in emissions would increase the average energy cost on a household with income around $15,000 by about $750 per household, he said.
According to the alliance, help could come in several different ways.
“We (Climate Equity Alliance) do believe consumer relief can be provided in part through the tax code for low-income working families, in part through the Electronic Benefit Transfer (EBT) system that every state in the country already uses,” he said.
The U.S. Department of Agriculture describes EBT as an electronic system where someone receiving government aid can pay a retailer by having their benefits transferred electronically to the retailer’s account.
But Greenstein and the alliance stopped short of saying that middle-class consumers should either receive rebate checks or should be left out in the cold.
“The alliance has called for adequate rebates to fully offset the impact on the budgets of low- and moderate-income consumers,” he said. “The alliance has not taken a position--and I’m not sure it intends to--on the middle-income issue.”
Greenstein, however, was unable to provide an explanation for who the Alliance thinks should be included in the “low- and moderate-income” bracket.
“We don’t have a specific definition that we work from. And different member groups might define this slightly differently,” he said.
Greenstein added: “If you’re not going all the way up on the income scale you have some point during which you phase down with the rebates.”
“I would think that the alliance certainly agrees that, at a minimum, people in the bottom
fifth of the population, that’s the bottom 60 million people, should be fully protected,” he said.
However, he added, “I want to be clear: the alliance is neither taking a position that it should go up all the way the income scale or that it absolutely should be limited to low- and moderate-income households.”
Greenstein, meanwhile, said a “properly designed” cap-and- trade program would use some emission allowance proceeds to fund other green projects.
According to the alliance Web site, all “green” legislation should be crafted around six principles that range from efforts to “minimize the pain” for low- and moderate-income individuals--and to put a price on “global warming pollution” and “invest in solutions.”
 “Any [federal] policy that aims to reduce greenhouse gas emissions or address the consequences of climate change will bring about changes not only in our environment, but also in our society and our economy,” states the Web site.
Jason Walsh, national policy director of Green for All, another Climate Equity Alliance member, said the alliance thinks that increased energy prices by themselves will not be sufficient to transition the United States to a green economy “that Dr. Martin Luther King would have approved of.”
“It is our belief, and I think the data support this: price signals alone are not going to allow us to make the shift to an energy-efficient economy that adequately uses renewable energy sources,” he said.
Developing alternative energy sources and investing in the “green economy” will take money, he said.
The environmental alliance, meanwhile, opposes a rival “cap-and-dividends” proposal that would still cap carbon usage, but funnel all earnings from the emission permits back to energy consumers, Greenstein said.  
“Under cap and dividends, no money remains for energy efficiency, alternative energy research, green jobs, adaptation, or the like,” he said. “Obviously, the Climate Equity Alliance believes that those areas ought to get some resources too.”
“We do not put all or virtually all the auction proceeds in the consumer relief that goes all the way up the income scale,” he said, “because we do want adequate resources for other important things as well.”
Greenstein, meanwhile, noted that the alliance and its member groups have been working with Waxman, Markey, and other members of Congress to craft the cap-and-trade proposal.
“I think members of that [Waxman’s] committee, whatever party they are part of, recognize that we face an economic and energy and climate crisis,” Walsh added.  
House Democrats introduced climate adjustment legislation--The American Clean Energy and Security Act of 2009--on Mar. 31. The bill could go to the House by Memorial Day but the Senate version has not gone to the Senate Environment and Public Works Committee.