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Two Recent Studies of Regional Differences in the Effects of Policies That Would Price Carbon Dioxide Emissions

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Two Recent Studies of Regional Differences in the Effects of Policies That Would Price Carbon Dioxide Emissions, July 9, 2009, Letter to the Honorable James M. Inhofe

  • “As you know, the Congressional Budget Office (CBO) recently analyzed the effects that the cap-and-trade program for greenhouse-gas (GHG) emissions specified by H.R. 2454 (as reported by the House Committee on Energy and Commerce) would have on households at various income levels.1 That bill would set a limit on total emissions for each year and would require regulated entities to hold rights, or allowances, to emit greenhouse gases. CBO’s analysis accounts for the effects on households in different income groups of both the increases in prices of goods and services that would result from the cap-and-trade program (the gross cost of the program) and the distribution of the value of emission allowances (which, in the aggregate, would offset most of the gross cost). The price increases would be a direct effect of the cap-andtrade program: Combustion of fossil fuels releases carbon dioxide (CO2), which accounts for over 80 percent of all GHG emissions in the United States. By increasing the prices of fossil fuels in proportion to their CO2 emissions, a cap-and-trade program would increase the prices of goods and services in proportion to the CO2 emissions associated with their production and consumption.”
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