How Much Will It Cost - and Where Will the Money Go?
by Michael Shellenberger
Breakthrough's initial analysis of the Boxer amendment (one-page PDF summary & full text) to Lieberman-Warner finds that it would cost the average American $590 every year in higher prices, and that $37 dollars, or 6 percent, would go to clean energy.
For years, conservatives have been saying that it will be too expensive to do much about climate change. Environmentalists have either responded that it won't be very expensive or that the cost doesn't matter, given what's at stake. Lately, some advocates of action on climate change, like Climate Progress and Grist, have suggested that simply having the conversation about costs is tantamount to opposing action on global warming.
We disagree. Why leave it to the opponents of action to define the debate over costs?
What follows are our estimates on how much the Lieberman-Warner Climate Security Act (CSA) will cost and how it will spend the money. This is our first analysis. We attempt to show our work as much as possible in the interest of transparency.
How Much Will It Cost?
Much of the debate to date has centered on the macroeconomic impact of the CSA. But what will it cost the average American?
The answer to that question depends on many factors, including how much energy you use, your household income, and where you live. The CSA auctions pollution permits, which means that if you live in a state like Ohio or Pennsylvannia, where their energy is mostly from coal, then you're going to have higher electricity increases than if you live in a state like Washington or California, where we get a lot of our power from hydroelectric dams. However, as the EPA pointed out to us, electricity rates are already lower in Ohio than California, so while their increase might be greater than mine, their overall bill might still be lower.
Senator Boxer released a helpful summary of how the money raised by the CSA would be spent, at least under her amendment. We totaled up the line items in that summary and came up with the number $6.7 trillion total over 38 years (2012 - 2050), or $177 billion per year. That money will come from auctioning pollution allowances to firms. How will the firms pay for these allowances? By cutting their profits? Reducing CEO salaries? Okay, you can stop laughing now. Firms will pay for these allowances by passing on their higher operating costs to consumers.
Again, I want to stress that the money won't be divided evenly, and there will be many analyses coming out that break-down who will pay what where. If you live in a 1,200 square foot house, as I do, you'll pay a lot less than if you live in a 10,000 square foot McMansion.
Those caveats aside, how much would CSA cost the average American? This is easy to figure out. Just divide the $177 billion in annual revenue by 300 million Americans and you get $590 per year. For a family of four, that would total $2,360 per year.
How Will the Money Be Spent?
Of the $177 billion that CSA raises annually, $11 billion, or six percent, would go to low emissions energy development and deployment (for short hand call it "clean energy," even though it would include nukes and coal with carbon capture and storage, which aren't particularly clean).
Another way to put it is that of the $590 that the average American would pay under CSA, just $37 would go to accelerating the transition to a clean energy economy.
Here's a specific breakdown of the money CSA would invest in clean energy annually (in billions:
Zero-/Low-Carbon Energy Generation: $2.42 billion
This money could go to any zero or low carbon energy generation, from nuclear to solar. Most of the models that are being used to calculate emissions reductions from CSA either assume this money would go to nuclear or coal with carbon capture and storage, according to Jonathan Banks of the Clean Air Task Force, who runs one of the leading models.
Advanced Energy Research: $450 million
This is R&D money to develop energy sources that are at very early stages of development or don't exist yet.
Carbon Capture and Storage "Kick Start Program": $370 million
This money would go to up to installing carbon capture and storage on up to 10 coal plants.
International Clean Tech Transfer: $110 million
Renewable Energy Facilities: $3.95 billion
Cellulosic Biofuels: $680 million
CCS - Long Term Incentives: $3.11 billion
Here are some facts to provide perspective on these numbers:
- There are more than 25,000 power plants that emit CO2, worldwide. If every day we were to replace one of those plants with a clean energy alternative, it would take 56 years to replace 80 percent of them. (Prometheus)
- There are about 7,000 coal-fired power plants in the world. If CSA were wildly successful, it might convert a half dozen coal plants in the U.S. to coal with carbon capture and storage.
- CSA gives about $4 billion a year for all renewables. To put this number in perspective, Scientific American's "Grand Solar Plan" would cost over $10 billion a year until 2050, and many experts think this estimate is wildly optimistic. One leading study on solar learning curves estimates that it would cost $200 billion (~$10 billion over 20 years) to bring the price of solar PV down to the price of natural gas.
Where goes the rest of the money go?
The biggest ticket item is for deficit reduction, which would receive $25 billion per year. The second biggest is to help consumers pay for higher energy prices: $46 billion (a number we calculated by adding $21 billion for "Tax cut for those needing assistance" and the $25 billion for "Local distribution companies for consumer protection").
Forty-six billion sounds like a huge amount of money. But it depends on how that money is spent. If you divided the $46 billion among the poorest 150 million you get $306 per person. The energy cost increase for the poorest 50 percent of Americans would thus be $284. Or, if the consumer rebates were set aside for the poorest 25 percent of Americans, they would pay no increase. Of course, you'd have to justify this policy to the 50 percent or 75 percent of Americans who would be paying larger increases - a matter we'll return to in future posts.
The rest of the money would go to industry, adaptation, and worker retraining. We've created a table that shows this breakdown of spending here:
Click below for a full-sized image
This is our first cut at how CSA raises the money and how it spends it. Does this look right to you? What do you think?