Following up on last week’s preliminary analysis of the Kerry-Lieberman climate bill, here’s a closer look at how allowances are distributed under the cap-and-trade program. (Sometimes called “permits,” the number of allowances in a given year is equivalent to the annual cap established by the program.)
High level: the allowances allocated over the life of the program, from 2013 to 2050, heavily favor consumer benefits. Smaller chunks are dedicated to deficit reduction, industry, and other objectives.
[See full size image here.]
What you see is that 68 percent of the allowances are specifically targeted at consumer benefits—things like ratepayer insulation, protection for low-income households, and universal rebates. Additionally, 10 percent of the allowances are set aside to reduce the deficit, shown in orange. Shown in light green, 9 percent of the allowances are directed to a variety of industry transition measures such as industrial energy efficiency and protection to trade-exposed industries, as well as some giveaways to oil refiners. The remaining allowances—totaling around 13 percent—go to transportation spending, carbon capture and sequestration, clean energy subsidies, research & development, and a variety of smaller purposes. (I provide more definition for each of these terms in the notes, below.)
High level, through time: a summary view of the major categories, tracked in each year of the program from 2013 to 2050.
[See full size image here.]
You can see the number of allowances under the cap decline for a couple of years; then increase sharply in 2016 (when industrial emitters and natural gas distributors are added); and then decline over time in a linear path until 2050.
Detailed view: all of the major categories for which allowances are awarded.
[See full size image here.]
For those interested in more detail, I’ve prepared a spreadsheet of the raw data.
Notes and methods
Following, are some explanation of the terms I’ve used in this post, as well as some clarification about the assumptions I’ve made. As a general matter, all of the figures are calculated by Sightline Institute based on the American Power Act.
My analysis is, in many ways, indebted to Ted Gayer at the Brookings Institution, who has produced a high-quality analysis of the bill’s approach to allowance value distribution. (Another good resource, via Joe Romm, is Robert Stavins’ detailed review of the bill’s allocations, in which he finds that 82% goes to “consumers and public purposes.” And Pete Ericksen at Stockholm Environment Institue just sent me a good graphic depiction by Judi Greenwald at Pew; I can’t find it online, however, so no link.)
- “Deficit reduction” refers to allowances distributed to the Deficit Reduction Fund as well as to the one-quarter of allowances in the Universal Trust Fund that are set aside for deficit reduction.
- “Transportation” refers to allowances distributed to “transportation infrastructure and efficiency” that are in turn allocated in equal thirds to the national Highway Trust Fund, the National Surface Transport System, and transportation greenhouse gas reduction.
- “Miscellaneous” refers to allowances that are distributed to “adaptation” and “early action.” (“Adaptation” allowances are actually directed to two separate purposes: half of these are for “community protection” and half are for “international adaptation and global security.”)
- “Tech & clean energy” refers to allowances that are distributed to “energy efficiency and renewable energy,” “clean vehicle technology,” “low-carbon industrial technologies research and development,” and “clean energy technologies research and development.”
- “CCS” refers to allowances that are distributed to “commercial deployment of carbon capture and sequestration.” The bill’s table setting forth the allowances for commercial deployment to CCS omits the year 2019, apparently by accident. Following Ted Gayer at Brookings, I guessed that the correct figure is 0.8 percent, as it is in 2017 and 2018.
- “Industry” refers to allowances that are distributed to “trade-exposed industries,” “industrial energy efficiency,” and “refiners.”
- “Consumer benefit” refers to allowances that are distributed to “electricity consumers,” “natural gas consumers,” “home heating oil and propane consumers,” “consumer relief” (for low-income households), and the three-quarters of the allowances in the Universal Trust Fund set aside for universal rebates.
My analysis does not include any treatment of allowances set aside for the cost containment reserve.
Jessica
Eric, forgive me for being dense, but it’s been a long week. How are you treating allowances that are given (not auctioned) to local electricity distribution companies? Ted Gayer’s analysis seems to show that they get 51% of allowances through 2015—is this consumer benefit?
Eric de Place
Jessica,I see I didn’t include a definition for “consumer benefit.” I’ll add one now.In any event, my analysis does treat those allowances—the one given to electricity distribution companies—as “consumer benefit.” The reason is because the bill stipulates that the value of those allowances is to be used “to benefit and protect electricity consumers.” (Same goes for the smaller share of allowances allocated to natural gas and home heating oil & propane consumers.) Granting allowances to utilities is not the most straightforward way of consumer protection to consumers, but it can be effective if administered properly.