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Need to Protect Low-Income Households Up in the Air Under EPA Climate Regulation

June 3, 2014 at 12:45 PM

In my latest post for US News & World Report, I previewed the Obama Administration’s proposal to reduce carbon pollution from existing electric power plants.  It was important to include robust low-income protections in the comprehensive national “cap-and-trade” proposal that Congress debated but failed to enact.  Should the new proposal also include such protections?

At this point, we don’t know.  The new proposal relies on the Environmental Protection Agency (EPA) to establish emissions-reduction goals for each state and approve state plans for meeting those goals.  As CBPP has explained, such a prescriptive regulatory approach will likely be less cost-effective (i.e., it will cost more to achieve a given emissions target) than a comprehensive market-based approach like cap-and-trade or a carbon tax that “puts a price on carbon” and lets market forces determine where emissions reductions come from.  But the consumer impact is likely to be smaller under regulation precisely because the price signal is weaker.

As I say in the US News post:

The Obama administration pledges to give states as much flexibility as possible to meet the new regulations on emissions from existing power plants, and there are several ways to do that, including some that mimic a carbon tax or cap-and-trade, achieving some of the cost efficiencies (but only within the existing power plant sector)...

One leading issue in designing market-based solutions is the impact on consumers, especially low-income households, of putting a price on carbon.  The comprehensive bills that Congress debated in 2009-10 addressed that issue by allocating some of the revenue the government received from selling emissions allowances to consumer relief.  EPA regulation is less cost-effective, but it also has a less adverse impact on household budgets.  But were states to choose more market-based solutions within the EPA’s requirements, such as joining regional cap-and-trade systems, both federal and state policymakers should be mindful of the possible harm to low-income households.

The EPA will issue final guidelines in about a year and states will have until June 2016 to submit plans.  In the meantime, CBPP will continue to urge policymakers to develop policies that are compatible with protecting both the environment and low-income households.