Cap and Trade Rules
Obama Plan Has $79 Billion From Cap-and-Trade in 2012

By Kim Chipman and Catherine Dodge
February 26, 2009

President Barack Obama’s budget plan assumes
$78.7 billion in revenue in 2012 from the sale of greenhouse-gas
emission permits to polluters, putting pressure on Congress to pass
legislation by early next year.

A “cap-and-trade” program would generate a total of $645.7 billion
by 2019, according to the budget blueprint Obama sent to Congress
today. Initial funds would be used to invest in “clean” energy, help
finance Obama’s tax credit for workers as well as offset higher
energy costs for low- and middle-income people and clean up costs
for small businesses.

The budget calls for the Environmental Protection Agency to get $19
million to begin setting up an inventory of greenhouse- gas
emissions that most scientists say are causing rising temperatures
and sea levels. Obama has asked Congress to send him a bill that
would create an emissions trading system, putting a mandatory cap on
carbon-dioxide pollution nationwide for the first time in the U.S.
“The Obama administration is now upping the ante for action in this
Congress,” said Dan Weiss, director of climate strategy for the
Washington-based Center for American Progress, a public policy group
that supports Democratic policies.

Heading to Congress

The plan is likely to spark a contentious debate in Congress. Many
Republicans agree with former President George W. Bush, who opposed
setting a carbon cap, arguing that it would cost jobs and harm the economy.

While Democrats have majorities in the House and Senate, the party
splits regionally on climate-change issues as lawmakers from rural
districts and manufacturing and coal states seek to protect local
industries and jobs, especially during the recession.

The cap-and-trade program favored by Obama would let companies trade
pollution allowances on an open market to give them incentives for
reducing greenhouse-gas emissions and moving toward cleaner technology.

Obama has acknowledged it would cause an initial spike in energy
costs and is proposing to use $60 billion a year from the auction of
carbon trading permits to help finance his “making work pay” tax
credit program for lower-income families.

Impact on Consumers

“Cap-and-trade system will have some effects on households,” White
House budget director Peter Orszag said today. “That’s one reason we
are linking the cap-and-trade program to making work pay.”

The president’s budget plan also calls for using $15 billion a year
from cap-and-trade revenue for “energy efficiency” investments and
an unspecified amount to assist low- and middle- income people hit
with higher energy bills.

The Congressional Budget Office estimates the revenue generated from
such a system could ultimately range from $50 billion to $300
billion a year. Obama’s plan assumes a reduction from 2005 emissions
levels of 14 percent by 2020 and 83 percent by 2050, and is based on
establishing an economy-wide cap on emissions with carbon credit
prices starting around $20 per ton.

It also assumes an auction of all pollution-trading allowances. Some
lawmakers, including Obama’s Republican rival in the presidential
race, Senator John McCain of Arizona, have supported giving permits
to some industries for free to help offset the cost of trying to
move toward a low-carbon energy economy.

Support From Companies

Some companies, including General Electric Co., say they favor a
cap-and-trade program because it would spur investment in “green”
technology and because they want clarity on federal rules so they
know how to proceed with long-term business investments.
Analysts said it might be difficult to get Congress to approve an
auction of 100 percent of the allowances.

Lawmakers will want to protect U.S. jobs and limit power price
rises, said Abyd Karmali, head of carbon emissions in London for
Merrill Lynch & Co., the New-York investment bank bought by Bank of
America Corp.

“There’s a lot of fear out there and the fear is increased by the
terrible economic conditions,” Weiss said.

Senator James Inhofe of Oklahoma, the top Republican on the
Environment and Public Works Committee, says capping such emissions
would cost taxpayers as much as $330 billion a year.


Representative Joe Barton of Texas, the top Republican on the House
Energy and Commerce Committee, said the Obama plan would help create
“an artificial market” for carbon emissions, one that won’t
necessarily reduce greenhouse gas emissions.

He cited the European Union, which has had a carbon-trading program
for three years. Barton said that program has not reduced the
continent’s carbon emissions.

“I also challenge the pop wisdom that America’s example will charm
big emitters elsewhere to follow our lead, since others don’t seem
to prize our example nearly as much as they value our money,” Barton said.

Still, Republicans aren’t uniformly opposed. McCain is among
lawmakers who back mandatory limits on greenhouse-gas emissions and
setting up a cap-and-trade system.

Congress would have to pass legislation this year or early in 2010
for the system to be operating and providing revenue by 2012, said
David Doniger, policy director of the Washington-based Natural
Resources Defense Council’s climate center.

Senate Majority Leader Harry Reid of Nevada and House Speaker Nancy
Pelosi of California, both Democrats, have said they want to pass
climate-change legislation this year.

Environmentalists praised Obama’s willingness to put cap- and-trade
assumptions in his budget plans.

“Barack Obama had made this a priority during the campaign,” said
Tim Greeff, deputy legislative director at the Washington-based
League of Conservation Voters. “What this shows is President Obama
has the full intention of coming through on this issue.”


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