CBO Answers Big Climate Bill Question: Cost

This summer, Congress will decide whether or not to pass a comprehensive climate bill in the form of the American Clean Energy and Security Act (ACES). Until now, one big question was unanswered: Will it be too expensive?

The non-partisan Congressional Budget Office has released its analysis, and the answer is no.

The CBO's cost estimate projects that the climate bill would help reduce federal budget deficits by $24 billion over a decade.

ACES would raise $846 billion in its first decade, almost entirely through a cap-and-trade system for greenhouse gases intended to prompt companies to reduce their carbon emissions. During the same time period, the federal government would spend $821 billion through programs related to the bill.

The CBO report rebuts opponents of the bill who have claimed that it would be too costly.

“This certainly helps make the case for passage,” says Daniel J. Weiss, senior fellow and director of climate strategy at the Center for American Progress.

“It won’t all of a sudden convince someone who is opposed to support it. That doesn’t happen. But it does take away a very important opponents’ talking point – something that the American people care about – which is the deficit.”

The CBO analysis scrutinized the costs and revenues of all the components of the ACES climate bill proposed by Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.).

If passed, the bill would create two cap-and-trade programs – one for carbon dioxide and other common greenhouse gases and a separate market for hydrofluorocarbons (HFCs), the super GHGs used in refrigeration and air-conditioning. The allowances required for industries and power producers to emit those gases would partially be auctioned off to polluters by the federal government and partially given away.

The bill also includes tax credits to help low-income families offset the higher electricity bills they may face, as well as a renewable electricity standard requiring utilities to obtain a certain percentage of the electricity they sell from renewable sources, and other measures intended to increase energy efficiency and lower global warming emissions.

The government would raise revenues from the two cap-and-trade markets.

The CBO projected that annual revenues from both greenhouse gas auctions would total $38 billion in 2011 and then more than triple to $135 billion by 2019. The projections were based on the CBO’s estimate that greenhouse gas allowances would cost $16 a ton in 2012 and $26 a ton in 2019, and that an allowance for a ton of HFCs would cost $2 a ton in 2012 and $20 a ton in 2019.

On the expenditure side would be free allowances that the government would allocate to states, natural gas distributors and federal agencies for energy-efficiency programs and similar programs. Expenditures on these allowances would begin at $32 billion in 2011 and more than triple to $108 billion by 2019, according to the CBO analysis.

There would also be small costs for the tax credits and rebates for low-income families. Together, these two programs would cost less than $12 billion in 2013 and about $19 billion by 2019.

Despite the projected net gain for the government, opponents who had been clamoring for a CBO analysis remained unmoved.

Sen. James Inhofe (R-Okla.) released a statement echoing his usual refrain, calling the bill “the largest tax increase in history on consumers” and warning that it would “destroy American jobs.”

However, a study by Harvard professor of environmental economics Robert Stavins suggests that 80% of the allowances, if utilities properly pass on the savings, will benefit consumers and the public.

Weiss also notes that the CBO’s analysis does not take into account savings from averting climate change-related disasters, such as floods, droughts, storms and the spread of tropical diseases.