(CNSNews.com) – Offsetting the inevitable costs to consumers and industry of capping carbon emissions--the main regulatory action envisioned by the House-passed global warming bill--would be complicated and difficult to carry out, according to government reports.
The American Clean Energy and Security Act of 2009, a bill that passed the House in June and is awaiting action in the Senate, establishes a carbon trading system that allows carbon-emitting companies to buy a government permit or “allowances” for the amount of carbon they emit.
The allowances can be traded with other companies that emit less carbon. The intent is to “incentivize” firms to reduce their emissions. The cap-and-trade bill seeks to reduce emissions in the United States by 83 percent by 2050.
“According to the economic literature and economists we interviewed, regardless of the mechanisms for distributing allowances, consumers will bear most of the cost of cap-and-trade system because most regulated entities will pass along their increased costs in the form of increased prices,” said a
report released by the Government Accountability Office (GAO) in July.
The GAO suggests a number of remedies to reduce cost-burdens on consumers. These include, “reduction in taxes on income, labor or investment.”
Further, it proposes distributing the revenue from the auction of carbon-allowances to low-income families to “mitigate any disproportionate impact on low-income households,” and to expand the Earned Income Tax Credit. (The EITC is a refundable tax credit for people in certain low-income categories who have one or more qualifying children – the credit can go up to $5,657.)
The GAO report’s other option says, “The government could compensate regulated entities and their shareholders for lost profits by allocating them free [carbon-] allowances.”
As another option, the report says, “revenues might be used to fund climate-related programs such as research on low carbon technologies, or used to support climate mitigation activities in developing countries.”
The options all have tradeoffs, the report says. For example, “using revenues to dampen increases in energy prices may benefit ratepayers but reduce their incentives to conserve energy, potentially increasing the program’s overall cost.”
Though President Barack Obama and congressional Democrats have said a cap-and-trade system would benefit the economy by creating green jobs, there is no getting around the costs to the economy of such a system, said James Taylor, senior fellow for environment policy at the Heartland Institute, a free market think tank.
“What it really boils down to is any time government rations a good and creates artificial markets and artificial restrictions on it, the economy as a whole is going to suffer, no matter how you try to game that system,” Taylor told CNSNews.com.
“In this case, all of the economic pain associated with carbon restrictions, with or without cap-and-trade mechanisms, will accomplish no environmental benefit in the real world, but will come with substantial economic costs,” he added.
Meanwhile, carbon offsets could significantly reduce the compliance costs for regulated companies, the Congressional Budget Office said in an Aug. 3 report. However, steps have to be taken to ensure the credibility and effectiveness of the offsets.
Carbon offsets have been equated to modern-day indulgences by critics. This is because they allow companies that emit large amounts of greenhouse gasses to “offset” in other areas by paying for the planting of trees, capturing of methane from livestock, non-till farming, or support of other major carbon-reducing programs.
“Despite the large costs savings that may be realized from including offsets in a cap-and-trade program, some observers are concerned that the use of offsets can undermine the environmental goals of the program,” the CBO report said.
“Those concerns arise because the reduction in GHG [greenhouse gases] from offsets may be more difficult to verify than the reductions from sources whose emissions are subject to the cap,” said the
CBO. “Moreover, some types of offsets may be more difficult to verify than others.”
Measures to verify whether offsets work include ensuring that the offsets bring additional reductions that would not have otherwise occurred in the absence of a carbon credit program, the CBO said. The offsets would need to be quantifiable – reliably measured –and offsets would need to be permanent rather than just causing a delay in the release of carbon.
But monitoring programs under current systems have not worked well, Taylor said.
“Carbon offsets can reduce the price of cutting emissions, but real world experience, including Europe’s program, show that there is likely to be plenty of cheating and sleight of hand shenanigans,” Taylor told CNSNews.com. “There are all kinds of steps we can take to make it more transparent and verifiable, but in the real world, this simply has not worked very well.”
Taylor cited examples of China drawing up plans for an industrial park that would emit large amounts of carbon until European companies – operating under a carbon credit system – paid them not to build the plant.
“The problem is they never really intended to build them in the first place,” Taylor said. “They knew by merely drawing up the plans, they could extract free money from Europe. Landowners can claim that they’re about to cut down some rain forest and then be paid money not to cut down a certain section of rain forest, and then simply go out and cut down another section of rain forest.”
The CBO estimates that about 52 percent of carbon emissions in the House cap-and-trade bill – the American Clean Energy and Security Act of 2009 – could be achieved through domestic and international offsets.
“In 2030, the net cost in the United States for the program would be $101 billion – about 60 percent less than if offsets were not allowed,” the report said.
“Preliminary evidence suggests that they can significantly lower the economic costs of a cap-and-trade program, even after accounting for the costs of steps taken to increase confidence that offsets represent true incremental reductions of GHGs,” said the CBO. “However, estimates of the savings that would result from including offsets in a cap-and-trade program are imprecise and depend on policy design.”
Sen. John Barrasso (R-Wyo.) has said that creating a carbon credit industry could spawn fraud, money laundering, and other organized criminal activities, as has occurred in Europe. (
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