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Letter from Douglas W. Elmendorf, Director to James Inhofe with attached report: Two Recent Studies of Regional Differences in the Effects of Policies That Would Price Carbon Dioxide Emissions 1 (July 2009)

handle is hein.congrec/cbo10358 and id is 1 raw text is: July 9, 2009 Honorable James M. Inhofe Ranking Member Committee on Environment and Public Works United States Senate Washington, DC 20510 Dear Senator: I am writing in response to your request for information about the costs that would be imposed on households in different regions of the country by H.R. 2454, the Ameri- can Clean Energy and Security Act of 2009. As you know, the Congressional Budget Office (CBO) recently analyzed the effects that the cap-and-trade program for greenhouse-gas (GHG) emissions specified by H.R. 2454 (as reported by the House Committee on Energy and Commerce) would have on households at various income levels.' That bill would set a limit on total emissions for each year and would require regulated entities to hold rights, or allow- ances, to emit greenhouse gases. CBO's analysis accounts for the effects on households in different income groups of both the increases in prices of goods and services that would result from the cap-and-trade program (the gross cost of the program) and the distribution of the value of emission allowances (which, in the aggregate, would offset most of the gross cost). The price increases would be a direct effect of the cap-and- trade program: Combustion of fossil fuels releases carbon dioxide (CO2), which accounts for over 80 percent of all GHG emissions in the United States. By increasing the prices of fossil fuels in proportion to their CO2 emissions, a cap-and-trade pro- gram would increase the prices of goods and services in proportion to the CO2 emis- sions associated with their production and consumption. But those increases in prices would not be the only effect on households because, under H.R. 2454, much of the value of the allowances would be distributed among households, either directly or indirectly. For example, in the initial years of the cap- and-trade program, roughly 35 percent of the allowance value would be directed to 1. Congressional Budget Office, The Estimated Costs to Households From the Cap-and-Trade Provisions of H.R. 2454, letter to the Honorable Dave Camp (June 19, 2009).

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