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Energy bill nears vote in House, but what's in it for consumers?

WASHINGTON — How much will it cost the average American household to reduce the U.S. share of global warming pollution and shift to cleaner sources of energy produced at home?

If Congress passes a law that puts the country on a path to that outcome, the answer on costs will depend on what kind of consumer protections are part of the new policy. The House of Representatives could vote on a bill produced by Reps. Henry Waxman, D-Calif., and Ed Markey, D-Mass., this week or after lawmakers return from their July 4 holiday break.

Backers of action to protect the climate are divided on how to do it in the smartest and cheapest way — and especially on what policies will best protect consumers from a loss of spending power as fossil fuel prices rise.

The question of costs is just one slice of the debate. The broader question is whether the bill goes far enough to reduce the share of global warming pollution from the U.S. — the world's biggest emitter on a per capita basis — and whether this and other U.S. efforts on climate protection will make it more likely that other countries — particularly China, the world's biggest greenhouse gas source — make reductions commitments of their own in international negotiations coming up this December on a global accord.

The bill would reduce U.S. emissions by 17 percent below 2005 levels by 2020 — or about 4 percent below 1990 levels, far short of the 25 percent or more cut by industrialized nations that international scientists recommend. In 2050, the bill would cut emissions by 83 percent below 2005 levels.

The bill's backers say that other parts of the legislation, such as investments to protect forests, would reduce emissions further, and that the Obama administration has gotten a jump on reductions through such separate measures as tighter fuel efficiency and tailpipe emissions standards.

However, some critics said the bill wouldn't reduce emissions of heat-trapping gases because it would let power plants or large factories buy permits to pollute. Some environmental groups said the bill's renewable energy standard, a national requirement for electricity supplies to depend more on renewable energy and efficiency, is too weak. The final negotiations were with rural lawmakers.

If the House passes the bill, the Senate will start putting together its version of climate protection and energy legislation this summer.

The bill would set a mandatory limit on emissions that would be lowered each year. Large sources of emissions such as power plants would have to buy permits for each ton of emissions. Companies could buy and sell the permits as needed, and the market would set the price.

"It's the preferred approach now, it's safe to say, by the private sector and the major environmental groups," said Vicki Arroyo, the executive director of the Georgetown State and Federal Climate Resource Center at Georgetown University.

The Environmental Protection Agency has estimated the allowances prices and figures the total amount would start at $60 billion in 2012 and increase.

"This is the biggest creation and allocation of property rights since the Homestead Act," a distribution of government lands signed by President Abraham Lincoln in 1862, said James Boyce, an economist at the University of Massachusetts.

Instead of territory, the new property is the right to emit greenhouse gases into the atmosphere, and the question is who owns this right, Boyce said. "People do need to pay attention to this, because if they're asleep when this all gets carved up, they're going to be left paying the prices without getting their share of the revenue."

House Republicans claim it would cost households $3,100 a year. Their energy proposal wouldn't limit emissions, but would expand nuclear energy and the use of oil and coal.

The independent Congressional Budget Office reported the cost of mandatory emissions cuts in the bill per household would be much less than the Republicans' estimate — $175 a year in 2020. It also said that households in the lowest 20 percent of income earners would come out ahead by $40.

The CBO considered both the energy costs households would pay and the benefits they'd get from sharing in the value of emissions permits.

The bill includes policies that would distribute about 55 percent of the value from the sale of permits to consumers indirectly through the regulated utilities that distribute electricity and natural gas and the states.

An alternative approach would require the federal government to sell all the permits and return the proceeds to all Americans on a per capita basis.

Proponents of that approach said the safeguards in the bill before the House are inadequate.

The bill divides up the money to many players, and the last-minute negotiations could result in some changes.

The consumer portions of the spending include:

  • The federal government would sell 15 percent of the permits and distribute the revenue to low- and moderate-income consumers through tax credits and electronic payments.
  • The value of 32 percent of the pollution permits would go to the regulated utilities that distribute electricity, based on a formula that gives more to utilities with greater dependence on coal. These public utilities would be directed to use the allowances to keep electricity rates low.
  • Smaller amounts would go to regulated utilities that distribute natural gas and to states to help hold down home heating oil costs.

    The non-consumer parts include:

    • Money for preventing deforestation and making investments in renewable energy, efficiency, and research on how to capture and store greenhouse gas emissions from coal-fired power plants.
  • About 20 percent of the permits would go to businesses at no charge. These include industries such as steel that would be harmed by trade with countries that don't have emissions reduction requirements, and businesses such as oil refineries that have appealed for help.
  • Some critics who favor lump-sum rebates over the system in the bill said they doubt the regulated utilities in all 50 states would manage billions of dollars from permit sales in ways that benefit consumers and not energy companies' shareholders.

    Peter Barnes, an environmental entrepreneur who favors direct rebates, said that the chances that utility commissions would hold rates down were "not that great." And if they succeeded and rates stayed low, there'd still be a downside — people would have no incentive to save electricity, he said.

    Barnes prefers government sales of all permits and wiring the money into bank accounts for all Americans with Social Security numbers.

    Boyce, the University of Massachusetts economist, also supports that approach. He said that people would only be happy to pay higher prices if they knew money from the climate program was going back to them.

    Staffers on the House Energy and Commerce Committee have argued that turning most of the permits' value back to the public would create a transfer of wealth away from coal-dependent regions and that it wouldn't help small business owners pay for clean energy research or protect jobs.


    Summary of key provisions of the American Energy and Security Act prepared by Democratic staff of the House Energy and Commerce Committee

    Supporters of an auction of emissions permits

    Summary of the House Republicans' energy plan

    The Political Economy Research Institute report on the bill's impact on jobs and the economy


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    Lawmakers forge alternative to cap-and-trade proposal

    Fertilizer industry finds its alternative energy: corncobs

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    How Obama's regulation plan aims to fix what went wrong