Late Friday night, 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 emissions allowances created by the bill will be divvied up. These allowances, which give polluters the right to emit greenhouse gases under the bill's cap and trade program, will be worth nearly a trillion dollars over the first ten years of the program alone.
Breakthrough Institute staff worked over the weekend to dig through the new legislation and get an accurate picture of the allowance allocation pie [see summary tables and graphics below and click here to download a comprehensive spreadsheet (*also in xls format) of allowance allocations in both Kerry-Boxer and the House Waxman-Markey/ACES bill. Note: updated after initial posting to convert EPA forecasts to 2009 constant dollars. Hat tip to Jason at 1Sky for catch].
Overall, the allowance allocation scheme mirrors the bill's House-passed sibling, the American Clean Energy and Security Act (ACES), aka the Waxman-Markey bill (HR 2454) [for a side-by-side comparison of the two bills, click here].
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.
The following table provides a detailed breakdown of the average annual allowance allocation over the first ten years of the cap and trade program (2012-2021), including percentage of total allowances and the dollar value under three likely allowance prices described below [click here for pdf version].
You can download a spreadsheet (.xlsx file) detailing allowance allocations under both the Kerry-Boxer (S.1733) and Waxman-Markey/ACES (HR 2454) bills here. Allowances are detailed from 2012-2032 and summarized in several ways to aid comparison and analysis.
Allowance price scenarios:
The first allowance price scenario is the floor price for permits established by the legislation, which begins at about $11/ton (in 2009 dollars) in 2012, and rises at 5% per year, resulting in an average allowance price of $13.91 during the first 10 years of the program. Note that carbon market research firm Point Carbon projects that due to modest emissions reduction targets, a slower-than-expected U.S. economy, and the permitted use of large numbers of offsets, allowance prices will likely remain at the allowance price floor through at least 2019. The resulting price is $13.91/ton on average for 2012-2021.
The second allowance price value is consistent with the EPA's preliminary analysis of Kerry-Boxer, which projects allowance prices unchanged from their analysis of ACES. 2005 constant dollar values reported by EPA have been updated to 2009 constant dollars for ease of comparison. The resulting price is $15.42/ton on average for 2012-2021.
Finally, to aid comparison with the House's ACES bill, Breakthrough calculated a price roughly consistent with the Congressional Budget Office's (CBO) price estimates under ACES. To provide a higher-range price, this scenario, labeled "CBO-equivalent," projects permit prices 180% higher than the floor price under Kerry-Boxer, which is consistent with proportionate difference between CBO's projections under ACES and the ACES floor price scenario. The resulting price is $25.04/ton on average for 2012-2021.
On "discrepancies" with Environment and Public Works Committee summary of allowance allocations:
The Senate EPW Committee published a summary of allowance allocations under S.1733 here. Some percentages reported in this document will differ from those reported in the analysis here, and in fact are somewhat confusing. Here's why:
Under Kerry-Boxer, allowances for some uses, like deficit reduction, stocking the Market Stability Reserve and other selected uses come "off the top" as a 'set aside' before the percentages reported for most of the other uses are calculated. About 16% of the allowances are set aside off the top in this manner. So when the EPW document (or the bill language) says elsewhere that a given percentage of the allowances are allocated to a particular use, say the allocation of 10.35% of the 2012 allowances to investments in renewable energy and energy efficiency, that is in reality 10.35% of the 84% of permits left over after the 16% of allowances set-aside, or really about 8.7% of the total permits (10.35%*84%).
This makes determining the true percentage of total allowances created under the bill somewhat challenging, requiring the kind of detailed reading and "spreadsheet work" conducted by Breakthrough here.
Note that the same was true for ACES, which set aside 1-3% of the permits each year "off the top" to stock the bill's Strategic Reserve pool, but with such a relatively small amount of total permits set aside this way, it did not have as significant an impact on the reported percentages allocated to other uses; Kerry-Boxer by contrast sets aside nearly 16% of permits in this manner, which has a noticeable impact on the percentages reported for other allocations.
On over-allocation of allowances under Kerry-Boxer:
Astute observers will note that the sum total of all Kerry-Boxer allowance allocations under this report total to roughly 101% between 2012-2021 (actual value is 100.65%). I've attempted to double check my calculations and identify the source of this over-allocation (potential typo?). However, at this time, it appears that the slight over-allocation may actually be based on an accurate reading of the bill language. It could be a simple oversight, given the complicated calculation of actual percent allocations discussed above. I will update this post if I identify the source of the over-allocation, but given how small it is (just 0.65% of total permits), it should not significant impact any of the figures above.
Questions: contact Jesse Jenkins, jesse[at]theBreakthrough.org.