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Letter to the Honorable John F. Kerry 1 (June 2009)

handle is hein.congrec/cbo8869 and id is 1 raw text is: CONGRESSIONAL BUDGET OFFICE Douglas W. Elmendorf, Director U.S. Congress Washington, DC 20515 June 12, 2009 Honorable John F. Kerry United States Senate Washington, DC 20510 Dear Senator: I am writing in response to your questions about an analysis by the Congressional Budget Office (CBO) that I discussed in my May 7 testimony before the Senate Finance Committee.' That testimony addressed the impacts of a possible cap-and-trade program for reducing U.S. emissions of carbon dioxide (C02). In that testimony, I indicated that the price increases associated with an illustrative cap-and-trade program that CBO considered would result in an average cost per household of $1,600 a year. That figure is an estimate of the gross per- household cost due to the imposition of a price on emissions; the net per-household cost, which accounts for other features of the program that would reduce households' costs or raise their income, would be substantially lower. In addition, the $1,600 cost estimate derives from the particular cap-and-trade program that CBO examined. The cost of cap-and-trade programs that have significantly different design features, such as the one that would be established under the bill recently approved by the House Energy and Commerce Committee (H.R. 2454, the American Clean Energy and Security Act of 2009), could be significantly different. More specifically, under the illustrative cap-and-trade program that CBO analyzed, the government would create allowances (that is, rights to emit C02) and firms that are regulated under that program would need to acquire such allowances. The government could either sell them (obtaining revenues that it could use in various ways, such as reducing taxes, providing rebates to consumers, or paying for other priorities) or give them away. In most cases, firms would pass the cost of acquiring the allowances (as well as their cost of reducing emissions) on to households in the form of higher prices for energy-intensive goods and services. Most of that estimated gross cost of $1,600 per household consists of the market value of the allowances that firms would have to acquire. But much of the value of those allowances would ultimately accrue to households in people's various roles as workers, investors, consumers, and taxpayers. The average net per-household 1 Statement of Douglas W. Elmendorf, Director, Congressional Budget Office, before the Senate Committee on Finance, The Distribution of Revenues from a Cap-and-Trade Program for CO2 Emissions (May 7, 2009). www.cbo.gov

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