by Jeff Pollock, J.Pollock Inc.
The House of Representatives passed H.R. 2454, known as the American Clean Energy and Security Act, or Waxman-Markey.
Beginning in 2012, Waxman-Markey stipulates that 70.4 percent of the allowances will be allocated freely, while the remainder will be reserved for auction. The number freely distributed will increase to 82.5 percent by 2019 and then decline steadily thereafter before stabilizing at 30 percent in 2031 and remaining at that level until 2050.
Unlike prior cap-and-trade legislation, Waxman-Markey introduces and gradually expands the auction market for emission allowances, thereby distributing the cost burden over time. As shown below, however, such action merely has the effect of shifting, not eliminating, the bulk of the costs to the future.
The annual costs on the electricity sector would climb sharply after 2023 until 2030, when $467 billion of the more than $740 billion total will be imposed. That alone represents nearly 63 percent of the total cost burden over a seven-year period. Thus, from 2012 to 2030, the costs borne by the electricity sector are projected to surpass $740 billion, according to Energy Information Administration data in “An Updated Annual Energy Outlook 2009 Reference Case Reflecting Provisions of the American Recovery and Reinvestment Act and Recent Changes in the Economic Outlook.” Moreover, the total costs imposed on the electricity sector over the life of the legislation are projected to reach nearly $5.4 trillion by 2050.
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These figures represent midpoint estimates of the potential costs to the electricity sector. J.Pollock estimates that these costs could range from $514 billion to $970 billion from 2012 to 2030, and from $3.7 trillion to $7 trillion from 2012 to 2050. These lower- and upper-bound estimates are based on data obtained from the Environmental Protection Agency (EPA) and reflect plausible and likely assumptions about economywide impacts and the response of domestic and international parties, according to the EPA’s “Analysis of H.R. 2454 in the 111th Congress, the American Clean Energy and Security Act of 2009.”
As with our previous analysis, J.Pollock has estimated the following distribution of carbon taxes by census region. Likewise, the census regions with the least amount of coal-fired generation (New England and Pacific) would be the least affected.
Translating the projected regional carbon taxes into consumer impacts, J.Pollock estimates that by 2023, every consumer will be paying significantly higher electricity costs.
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As Figure 3 indicates, the most dramatic surge in electricity costs will occur after 2023, when the auction market all but supplants the free allocation of allowances. Thus, the burden of impacts is not diluted at all; rather, it simply shifts to the next generation of consumers and business owners.
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Author
Jeffry Pollock is president of J.Pollock Inc. He has been an energy advisor since 1975. He has a bachelor’s degree in electrical engineering and a master’s degree in business administration from Washington University. Reach him at jcp@jpollockinc.com.
