Budget Office Says Climate Security Costly

The Congressional Budget Office on April 10 reported that America's Climate Security Act of 2007 (S. 2191) would require certain types of private-sector entities to participate in the cap-and-trade programs for greenhouse gas (GHG) emissions, and the cost of those mandates would be more than $90 billion annually (during 2012-2016), which exceeds the $136 million threshold (in 2008) of the Unfunded Mandates Reform Act.

According to the legislation, the U.S. Environmental Protection Agency would distribute allowances to emit specific quantities of GHG or hydrofluorocarbon gases. Some of the allowances would be allocated to the Climate Change Credit Corporation, an entity created by the bill. The corporation would auction those allowances and use the proceeds to finance various initiatives, such as developing renewable technologies, assisting in the education and training of workers, and providing energy assistance for low-income households. EPA would distribute the remaining allowances at no charge, to states, and other recipients, which could then sell, retire, use, or give them away. Over the 40 years that the proposed cap-and-trade programs would be in effect, the number of allowances and emissions of the relevant gases would be reduced each year.

The budget office estimated that, during the first five years following enactment, states would realize a net benefit from the GHG emissions allowances they would receive. Therefore, the annual threshold for intergovernmental mandate costs established in unfunded mandates legislation ($68 million in 2008, adjusted annually for inflation) would not be exceeded.

A proposed amendment would change the allocation of those emission allowances that would be auctioned and given away at no charge. A larger portion of the available allowances each year would be auctioned, and some of the proceeds would be deposited into a Climate Change Deficit Reduction Fund in the Treasury, established by the amendment. Spending from this fund would be subject to appropriation.

The budget office estimates that enacting S. 2191, as amended, would increase revenues by about $1.21 trillion over the 2009-2018 period, net of income and payroll tax offsets. "Over that period, we estimate that direct spending from distributing those proceeds would total about $1.13 trillion. The additional revenues would exceed the new direct spending by an estimated $78 billion, thus decreasing future deficits (or increasing surpluses) by that amount over the next 10 years," according to the report.

Compared with the amended version of S. 2191, the budget office estimates that, over the 2009-2018 period, the version of the bill that was ordered reported would result in $15 billion less in revenues, $79 billion more in direct spending outlays, and $81 billion less in spending subject to appropriation. Those differences result from provisions in the amendment that would increase the portion of allowances that would be auctioned, deposit a portion of auction proceeds into a Climate Change Deficit Reduction Fund, and make spending from that fund subject to appropriation.

In a statement released April 11, Charles T. Drevna, president of the National Petrochemical and Refiners Association, said that the budget office report confirms that the legislation is "nothing more than an all cost-no benefit approach for addressing climate change."

The association includes more than 450 companies, including virtually all U.S. refiners and petrochemical manufacturers.

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