Podcast: Climate Change Legislation
July 8, 2009
In this podcast we’ll discuss ways to protect consumers from increased energy costs in climate change legislation. I’m Janet Hodur, and today we’re joined by the Center’s chief economist Chad Stone.
1. Chad, the House of Representatives recently passed a bill to restrict greenhouse gas emissions using an approach called “cap-and-trade.” Can you tell us what that is and how it would work?
A: Cap and trade system puts annual limits on the amount of carbon dioxide and other greenhouse gases that can be emitted into the atmosphere. That “cap” on emissions would be enforced by requiring electricity generators and other sources of greenhouse gas emissions to buy allowances which are essentially “permits to pollute.” And the number of permits would be strictly limited. Cap would tighten over time to reduce emissions, as a result, the number of allowances would gradually become scarcer and the price would go up, the price of that “permit to pollute” would go up. The tightening cap and the rising cost of polluting would encourage energy efficiency and greater use of clean energy sources.
2. The part about encouraging energy efficiency and greater use of clean energy sources sounds good, but aren’t higher costs bad for the economy and tough on consumers?
A: Look, fighting global warming means changing the way we produce and consume energy. Any costs to the economy from reducing greenhouse gas emissions need to be weighed against the costs of doing nothing. Doing nothing‘s likely to be much more costly and potentially catastrophic. Besides, the economic costs of reducing greenhouse gas pollution are estimated to be relatively modest and manageable. That said, policies that put a price on continuing to emit greenhouse gases do have the potential to harm consumers, especially low-income consumers.
3. Does the bill do anything to protect consumers?
A: Yes, it gives money to utility companies which they are supposed to use to hold down increases in people’s bills. It also provides additional direct assistance to low-income households.
4. Why do we need additional assistance for low-income families?
A: First, for all consumers, including low-income households, the money for utilities at best covers less than half of their increased costs. Doesn’t cover gasoline, for example. Second, low-income families will be the ones who are most affected by the price increases caused by the legislation that’s aimed at sharply reducing greenhouse gas pollution because they spend a larger share of their budget than richer households do on energy and other goods and services produced using energy. We’re talking here about people who may already be struggling to put food on the table. They don’t really have other areas of their household budgets that they can cut from.
5. Who are the people who would be helped? And how much help would they receive?
A: The House bill provides assistance for families with an income up to around 150 percent of the poverty level. For a family of four that would be about $35,000 a year or less. In addition to any relief they would receive on their utility bill, these households would receive energy refunds through the Electronic Benefit Transfer system - The EBT. The EBT is essentially a debit card that states already use to provide food stamps and other forms of assistance to low-income families. The energy refund would be put on their card each month and they could spend it like cash.
6. Won’t people just use the refund to maintain their old level of energy consumption?
A: They might. But unlike relief provided through utilities, which is directly tied to their bill, and really doesn’t give them incentive to change their behavior, they’ll have cash that they can use any way they want. They will see the change in energy prices and that will give them an incentive, to the extent they can, to be more careful about their energy consumption and to take advantage of opportunities to invest in energy efficiency.
7. As the Senate takes up climate legislation, is there anything you would suggest to strengthen the current bill?
A: It would be good to channel more funds into providing relief to moderate income households farther up the income scale. They, too, will have difficulty with higher energy costs and would benefit from such relief.
8. Where would the money come from to fund those additional benefits for moderate income consumers?
A: In the current bill, the one that just passed the House, a lot of money is given to utility companies to keep down increases in their customers’ bills. Many analysts see this as very poorly targeted relief and think that much of the money will not really end up benefiting consumers. Instead of providing utility bill relief broadly to even the richest people in the country, it would be better to redirect some of that money to extend direct relief farther up the income scale, to those who will really feel the pinch.
Thank you for your time, Chad.