Grassley continues criticism of ‘cap-and-trade’ bill

U.S. Sen. Chuck Grassley has reiterated his call for Congress to abandon climate change legislation in order to wait for an international treaty.

File photo: Sen Charles Grassley. (Lauren Victoria Burke/wdcpix.com)

Grassley, and many farm-state lawmakers, fear legislation passed in the House earlier this year that calls for limits on carbon dioxide emissions through the buying and selling of carbon credits would force the Midwest to shoulder an unfair burden of the costs. He repeatedly said that in order to deal with climate change a global treaty is needed.

“A global approach makes more sense than unilateral action on climate legislation, but if unilateral climate legislation is taken up in Congress it should at least share the economic burden equitably across all states and regions of the country,” Grassley said. “It’s clear that this highly questionable policy must be changed for the sake of fairness and credibility with the legislation.”

The American Clean Energy and Security Act of 2009, commonly referred to as the Waxman-Markey bill, passed the U.S. House in June. It aims to reduce emissions by imposing a national limit, or cap, on greenhouse gases. It would then allow polluters to buy and sell their emissions credits. If a polluter emitted less than its allotment, it could sell the excess. Some fear the system benefits utilities operating on the east and west coasts that are less dependent on coal than their Midwest counterparts.

In a letter to the chairs of the Senate Environment and Public Works Committee, which plans to take up the legislation Tuesday, Grassley said U.S. action without an international agreement would have “little or no environmental benefit.”

He also criticized the cost of the legislation, calling it a “national energy tax.”

“The current provision that allocates a large portion of allowances to utilities regardless of a utility’s actual compliance obligation is in effect a transfer of wealth to the East and West coasts at the expense of other regions, like the Midwest, which will already be shouldering a larger share of the burden under the proposed system,” he said in his letter. “Surely you can recognize that this provision will be unacceptable to senators on both sides of the aisle that represent regions on the losing end of this highly questionable policy and it must be changed for the sake of fairness and credibility.”

A study of the plan by the Congressional Budget Office found that the cost of implementing a cap and trade system would vary depending on income. Low-income consumers could expect to save $40 a year, while high-income consumers will see a net cost for energy of $235 to $340 annually.

Here is a copy of Grassley’s letter:

The Honorable Barbara Boxer, Chairman The Honorable John Kerry, Chairman Committee on Environment and Public Works Committee on Foreign Relations 410 Dirksen Senate Office Building 446 Dirksen Senate Office Building Washington, DC 20510 Washington, DC 20510

Dear Senators Boxer and Kerry:

As you know, the global warming legislation moving forward in the Senate will have far reaching economic impacts for all Americans. I question the wisdom of any unilateral U.S. legislation outside of a fair and equitable international agreement given the acknowledgement by EPA Administrator Jackson and other experts that this would have little or no environmental benefit. However, if the Senate is to consider unilateral climate legislation, it should at least share the economic burden equitably across all states and regions of our country.

According to testimony from the Congressional Budget Office before the Senate Finance Committee, “a cap-and-trade program would lead to higher prices for energy and energy-intensive goods” and “Under a cap-and-trade program, consumers would ultimately bear most of the costs of emission reductions.” In order to try to alleviate the burden of increased energy costs on American families in the first years of such a program, current proposals involve a system of free allocation of emission allowances for the electricity sector.

These free allowances are intended to offset a portion of the increased energy costs caused by the requirement to purchase allowances. (CBO has also made clear in response to my written questions that, “The value of the allowances created under a cap and trade program would be large, but would inevitably fall short of the total economic effects of the policy—which would include the cost of allowances themselves as well as the losses associated with the reduction in output associated with transitioning to a less carbon-intensive economy.”) However, the current formula in the House-passed Waxman-Markey bill and the recently released Boxer-Kerry bill allocates only half of the free allowances based on a particular utility’s requirement to purchase emissions allowances and the other half based on retail sales of electricity. In other words, free allowances will be given for electricity generated by means that entail no requirement for emissions allowances and therefore no increased costs.

It is important for Members of Congress to recognize that since a cap-and-trade system inevitably involves increased costs for American consumers, it is in effect a national energy tax and emissions allowances represent a portion, but not all of the cost of this tax to the American people. Therefore, most, if not all, of the revenue generated by this tax in the form of emissions allowances should be given back to the American people in proportion to what they were forced to pay in the first place.

The current provision that allocates a large portion of allowances to utilities regardless of a utility’s actual compliance obligation is in effect a transfer of wealth to the East and West coasts at the expense of other regions, like the Midwest, which will already be shouldering a larger share of the burden under the proposed system. Surely you can recognize that this provision will be unacceptable to senators on both sides of the aisle that represent regions on the losing end of this highly questionable policy and it must be changed for the sake of fairness and credibility.

Sincerely,

Charles E. Grassley United States Senator