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Letter to the Honorable Henry A. Waxman: The Budgetary Treatment of Emission Allowances under Cap-and-Trade Policies [i] (May 2009)

handle is hein.congrec/cbo8921 and id is 1 raw text is: CONGRESSIONAL BUDGET OFFICE Douglas W Elmendorf, Director U.S. Congress Washington, DC 20515 May 15, 2009 Honorable Henry A. Waxman Chairman Committee on Energy and Commerce U.S. House of Representatives Washington, DC 20515 Dear Mr. Chairman: The potential introduction of carbon cap-and-trade policies raises complicated questions about how those policies might be reflected in the federal budget. In response to such questions, the Congressional Budget Office (CBO) has prepared the enclosed description of how it plans to assess those budgetary impacts. Federal legislation to limit the emission of greenhouse gases (GHGs) through the issuance of tradable allowances effectively would create a new type of financial instrument of significant value and liquidity. The document explains CBO's view that the value of such allowances-whether auctioned or freely distributed-should be recorded on both the revenue and outlay sides of the federal budget. It also describes CBO's position regarding the circumstances in which net revenue from the allowances would be less than the value of the allowances themselves because of a so-called revenue offset. The examples used to illustrate various possible budgetary outcomes involve electric generating companies and local distribution companies (LDCs), which have been a focus of your and other policymakers' recent discussions. I hope this information is helpful to you. If you have any questions or concerns, I would be happy to discuss them with you. The CBO staff contacts on this subject are Frank Sammartino, who can be reached at 226-2680, and Theresa Gullo, who can be reached at 226-2800. Sincerely, Douglas Elmendo EImendrf Enclosure cc: Honorable Joe Barton Ranking Member www.cbo.gov

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