CBO's First Cost Estimate of Cap-and-Trade Legislation for the 111th Congress

June 5, 2009

CBO just released a cost estimate for the American Clean Energy and Security Act of 2009 (H.R. 2454), which was recently approved by the House Committee on Energy and Commerce. This legislation would make a number of changes in energy and environmental policies largely aimed at reducing emissions of gases that contribute to global warming. The bill would limit (or cap) the quantity of certain greenhouse gases emitted from facilities that generate electricity and from other industrial activities over the 2012-2050 period.

Under the provisions of the bill, the Environmental Protection Agency (EPA) would establish two separate regulatory initiatives known as cap-and-trade programsone covering emissions of most types of greenhouse gases and one covering hydrofluorocarbons. Both cap-and-trade programs would set a limit on total emissions for each year and would require regulated entities to hold rights, or allowances, to the emissions permitted under that cap. Some of those allowances would be auctioned by the federal government, and the remainder would be distributed at no charge.

Other major provisions of the legislation would:

  • Provide energy tax credits or energy rebates to certain low-income families to offset the impact of higher energy-related prices from the cap-and-trade programs;
  • Require certain retail electricity suppliers to provide a minimum percentage of their electricity sales with electricity generated by facilities that use qualifying renewable fuels or energy sources;
  • Establish a Carbon Storage Research Corporation to support research and development of technologies related to carbon capture and sequestration;
  • Increase, by $25 billion, the aggregate amount of loans Department of Energy is authorized to make to automobile manufacturers and component suppliers under the existing Advanced Technology Vehicle Manufacturing Loan Program;
  • Establish a Clean Energy Deployment Administration within the Department of Energy, which would be authorized to provide direct loans, loan guarantees, and letters of credit for clean energy projects;
  • Authorize the Department of Transportation to provide individuals with vouchers to acquire new vehicles that achieve greater fuel efficiency than the existing qualifying vehicles owned by the individuals; and
  • Authorize appropriations for various programs.

CBO and the Joint Committee on Taxation (JCT) estimate that over the 2010-2019 period enacting this legislation would:

  • Increase federal revenues by about $846 billion; and
  • Increase direct spending by about $821 billion.

In total, those changes would reduce budget deficits (or increase future surpluses) by about $24 billion over the 2010-2019 period.

In addition, assuming appropriation of the necessary amounts, CBO estimates that implementing H.R. 2454 would increase discretionary spending by about $50 billion over the 2010-2019 period. Most of that funding would stem from spending auction proceeds from various funds established under this legislation. CBO has done extensive work on issues surrounding climate change as I have mentioned in earlier blogs.