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Emissions allowances - have you heard about these?
They are an authorization to emit a fixed amount of greenhouse gases into the air. You've likely heard them talked about in cap and trade talk. Last week, Senator Barbara Boxer's Environment and Public Works Committee released a new draft of the Kerry-Boxer "Clean Energy Jobs and American Power Act" (S.1733) - the first version of the legislation to detail how the allowances created by the bill will be divvied up. And it's huge - they'll be worth nearly a trillion dollars over the first ten years of the program alone
Interestingly, when compared side-by-side with the the American Clean Energy and Security Act (ACES), aka the Waxman-Markey bill (HR 2454), the allowance allocation is nearly the same. Click here for that comparison. If you'd like to dig deeper into this, the great folks at the Breakthrough Institute laboriously poured over the legislation to get an accurate picture of the allowance allocation pies (below). And you can download their comprehensive spreadsheet HERE. Analylsis of the information can be found after the jump.
Originally at the Breakthrough Institute
Depending on the value of emissions allowances under the cap and trade program, an average of roughly $70 billion to $126 billion in emissions allowances will be created and distributed on each year under the first ten years of the bill's cap and trade program, 2012-2021.
Of that value, by far the largest share, roughly 64% of the total allowances, will be distributed for free to shield energy consumers and industry from the higher energy prices driven by the establishment of a price on carbon dioxide and other greenhouse gases under a cap and trade system. This includes both direct rebates to end consumers and low-income energy assistance, as well as free allocations to electric and natural gas utilities (aka "distribution companies"), which they are directed to use "on behalf of" their customers. It also includes direct transfers of billions of dollars in free allowances to various industries, ranging from the relatively defensible (11.3% of allowances to heavy industries vulnerable to international competition), to the pretty indefensible, (e.g. a windfall-profit generating allocation of over 3% of the allowances -- worth at least $2 billion annually -- to the "merchant" operators of conventional coal plants).
By contrast, only about 13% of the value of allowances will be invested in various clean energy technologies, including incentives for the deployment of carbon capture and storage technology (aka CCS, given 2.2% of permits on average each year), federal, state and local government funds to incentivize renewable energy and energy efficiency (6.4%), and investments in advanced clean vehicle technologies (1.7%).
Just 1.9% of the allowances are dedicated to critical clean energy research and development (R&D) efforts, which amounts to an investment of just about $1.4 billion annually under EPA-projected allowance prices (in 2009 constant dollars).
Overall, the "Clean Energy Jobs and American Power Act's" investments in clean energy technologies will total under $9.5 billion per year under allowance prices projected by the EPA.
4.5% of the allowances will be devoted to various other public purposes, including efforts to adapt to the public health, infrastructure, wildlife and natural resource impacts of an already-changing climate and training programs to expand a skilled energy efficiency, renewable energy and nuclear energy workforce.
Another 7.5% of the permits will be allocated to fund various supplemental emissions reduction efforts, with the largest share (4.2%) going to fund efforts to slow deforestation overseas. Efforts to reduce emissions in the U.S. agriculture and forestry sectors will receive 1.2% of emissions allowances and 2.1% of the allowances will be devoted to reducing vehicle-miles traveled and emissions in the transportation sector (e.g. through public transit expansion and more proactive metropolitan area transportation planning).
Just over 10% of the allowances will be set aside to ensure the cap and trade program does not increase the federal deficit (i.e. is "deficit neutral"). This is the largest difference between the allocation scheme in the Kerry-Boxer bill and the House-passed ACES legislation, which dedicated just about 3.1% of the allowances over the first ten years to deficit reduction.
Senate legislation is given a more rigorous test for budget impacts, with legislation required to have no major impact on the deficit over the next fifty years, while House legislation only examines impacts on the budget over the first ten years. The larger set-aside required to keep the bill deficit neutral means overall allocations for most uses are slightly lower in Kerry-Boxer than in ACES (for the strong-of-heart, see this wonky explanation of Congressional Budget Office scoring rules). Since House-passed legislation would eventually have to be made consistent with Senate budget scoring rules before concurrence and final passage by both chambers, ACES arguably over-promises the allowance allocations, which Kerry-Boxer attempts to correct.
