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CBO: Responses to Questions About the Cost of a Cap-and-Trade Program

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Responses to Questions About the Cost of a Cap-and-Trade Program, June 12, 2009 – Letter to the Honorable John F. Kerry

  • “…under the illustrative cap-and-trade program that CBO analyzed, the government would create allowances (that is, rights to emit CO2) and firms that are regulated under that program would need to acquire such allowances. The government could either sell
    them (obtaining revenues that it could use in various ways, such as reducing taxes, providing rebates to consumers, or paying for other priorities) or give them away. In most cases, firms would pass the cost of acquiring the allowances (as well as their cost of reducing emissions) on to households in the form of higher prices for energy-intensive goods and services. Most of that estimated gross cost of $1,600 per household consists of the market value of the allowances that firms would have to acquire.”

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