The Wonk Room

Utility Companies Falsely Claim Free Cap And Trade Credits Will ‘Mitigate Cost Impact’ On Customers

Our guest bloggers are Daniel J. Weiss, a Senior Fellow and Director of Climate Strategy at the Center for American Progress Action Fund, and Kalen Pruss, intern with the Energy Opportunity team at the Center for American Progress, and a junior at the University of Michigan majoring in environmental studies and history.

Major United States utilities have long opposed binding reductions in the greenhouse gases emitted by their coal fired power plants. Now that reducing global warming is a priority for President Barack Obama, these same companies want to bear as little of the clean up costs as possible by asking for free pollution allowances.

A group of investor-owned utility companies are pressuring Congress and the administration to give them 40 percent of any cap and trade system’s emission credits for free. “We want to make sure we mitigate the cost impact on our customers,” said David Ratcliffe, CEO of Southern Co., which happens to be the most carbon polluting utility company in America.

However, the Congressional Budget Office (CBO) testified on March 12 that providing free allowances to utility companies won’t do anything to help their middle and low-income families cope with higher energy costs caused by reducing pollution. Terry Dinan, senior CBO advisor on climate issues, told the House Ways and Means Committee that giving away allowances would not help utility customers:

Under a cap-and-trade program, firms would not ultimately bear most of the costs of the allowances but instead would pass them along to their customers in the form of higher prices. Such price increases would stem from the restriction on emissions and would occur regardless of whether the government sold emission allowances or gave them away.

Instead, low-income families could enjoy a net benefit from a cap-and-trade system if all emissions allowances are sold in the free market:

These families could be better off as a result of the policy (even without including any benefits from reducing climate change) if the government chose to sell the allowances and use the revenue to pay an equal lump-sum rebate to every household in the United States….. [rebate payments] could actually more than offset the average increase in spending on energy-intensive goods by low-income households.

Unsurprisingly, Dinan reported that only the wealthiest Americans and corporations would be better off if allowances are given away for free. Even if carbon-belching companies don’t have to purchase emission allowances, they would still reap in “windfall profits, which could be very large” from the rise in prices of goods and services that they sell. Utility companies’ pleas for free allowances are an attempt to boost their own revenues while asking middle and low income families to bear the burden of greenhouse gas clean up costs.