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Letter to the Honorable Henry A. Waxman: The Budgetary Treatment of Emission Allowances under Cap-and-Trade Policies 1 (May 2009)

handle is hein.congrec/cbo8922 and id is 1 raw text is: CONGRESSIONAL BUDGET OFFICE Douglas W. Elmendorf, Director U.S. Congress Washington, DC 20515 May 21, 2009 Honorable Joe Barton Ranking Member Committee on Energy and Commerce U.S. House of Representatives Washington, DC 20515 Dear Congressman: You requested CBO's assessment of the budgetary impact of carbon emission allowances that would be distributed pursuant to the May 18, 2009, amendment in the nature of a substitute to H.R. 2454, the American Clean Energy and Security Act of 2009, currently under consideration by the Committee on Energy and Commerce. CBO received a copy of the amendment on Monday, May 18, and the staff is still analyzing the legislation for its full impact on the federal budget. However, CBO can provide some information on the budgetary impact of the carbon emission allowances that would be distributed under the legislation, elaborating on the more general description provided in the agency's May 15 letter to Chairman Waxman. This analysis is still preliminary and may change as more information becomes available. The Budgetary Treatment of Emission Allowances CBO's May 15 letter described the agency's view that the value of allowances- whether auctioned or freely distributed-should be recorded in the budget as both a revenue to the government and an outlay by the government. The cost of purchasing allowances, whether from the government or from other entities that might receive allowances, would become an additional business expense for companies that would have to comply with the cap on carbon emissions. Those additional expenses would result in a decrease in taxable income in the economy, which would result in a loss of government revenue from income and payroll taxes, offsetting an estimated 25 percent of the government's revenues from the allowances themselves.

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