CBO Testimony: Statement of Terry M. Dinan Senior Advisor – The Distributional Consequences of a Cap-and-Trade Program for CO2 Emissions before the Subcommittee on Income Security and Family Support, U.S. House of Representatives, March 12, 2009.
“One option for reducing emissions in a cost-effective manner is to establish a carefully designed cap-and-trade program. Under such a program, the government would set gradually tightening limits on emissions, issue rights (or allowances) consistent with those limits, and then allow firms to trade the allowances among themselves. The net financial impact of such a program on low- and moderate-income households would depend in large part on how the value of emission allowances was allocated. By itself, a cap-and-trade program would lead to higher prices for energy and energy-intensive goods. Those price increases would impose a larger burden on low- and moderate-income households than on higher-income households, relative to either their income or total spending. Lawmakers could choose to offset the price increases experienced by low- and moderate-income households by providing for the sale of some or all of the CO2 emission allowances and using the revenues to compensate such households.”
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