# Presentation: 730953

## CLIMATE CHANGE AND THE IMPACT OF A CAP-AND-TRADE CARBON CONTROL PROGRAM ON LOW-INCOME CONSUMERS 

- Joel Eisenberg
- ORNL

- _[Eisenbergjf@ornl.gov](mailto:Eisenbergjf@ornl.gov)_
- 202 479 0439

**JUNE ,2008**

- http://weatherization.ornl.gov

- SOURCE: INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE

## SOURCE: INTERGOVERMENTAL PANEL ON CLIMATE CHANGE

## “The United States accounts for nearly as many emissions as the

*former Soviet bloc, the Middle East, Central and South America,*
*and Africa combined. Use of fossil fuel in the United States is split*
*roughly into three categories: commercial and residential buildings*
*and appliances, industry, and transportation. More than a third*
*of that fuel is used to generate electricity, two thirds of which goes*
*to buildings and one third to industry.”*

- SOURCE: THE CONGRESSIONAL BUDGET OFFICE

## Slide 5

## WHAT IS “CAP-AND-TRADE”?

- IT IS A MECHANISM TO **REGULATE **CARBON EMISSIONS **AND** USE **MARKET TRADING** TO REDUCE THE COST.
**THE CAP-** TOTAL EMISSIONS OF GREENHOUSE GASES WOULD BE LIMITED AND GRADUALLY REDUCED.
- REGULATED ENTITIES WOULD BE REQUIRED TO HOLD PERMITS (**ALLOWANCES**), EACH ALLOWING THEM TO EMIT A TON OF CO2 UNDER THE CAP.
**THE TRADE-** PERMIT HOLDERS WOULD BE FREE TO BUY AND SELL ALLOWANCES IN AN OPEN MARKET.
**OFFSETS**-FOREIGN OR DOMESTIC- MIGHT BE USED TO REDUCE ALLOWANCE REQUIREMENTS.

## CAP-AND-TRADE DESIGN ISSUES

- HOW HIGH A COST ARE WE WILLING TO PAY?
- WHO WILL NEED A PERMIT?
- HOW WILL ALLOWANCES AND SALES REVENUES BE ALLOCATED?
- HOW WILL DISTRIBUTIVE ISSUES BE ADDRESSED?

## WHO WILL NEED A PERMIT?

- UPSTREAM
- COMPREHENSIVE COVERAGE
- SIMPLICITY OF ADMINISTRATION
- MIDSTREAM
- TARGETED IMPACT
- FOCUSED DECISION MAKING
- DOWNSTREAM
- POINT OF PRICE IMPACT
- ADMINISTRATIVE NIGHTMARE

## HOW WILL PERMITS BE ALLOCATED?

- HISTORICAL-USAGE ALLOCATION
- LOW REVENUE FLOW
- REDUCED INITIAL IMPACT
- PURE AUCTION
- HIGHEST CONSUMER IMPACT
- GREATEST EFFICIENCY & REVENUE
- MIXED AUCTION/PUBLIC INTEREST
- ECONOMIC EFFICIENCY
- POLITICAL RESOURCE ALLOCATION

## DISTRIBUTIVE IMPACT OF $15 PER TON CARBON TAX

- SOURCE: BROOKINGS INSTITUTION-HAMILTON PROJECT

## HOW WILL DISTRIBUTIVE ISSUES BE ADDRESSED?

- MAXIMIZE REVENUE RESTORATION
- GET AS MUCH AS POSSIBLE  IN CONSUMER HANDS
- TREAT THIS AS AN INCOME PROBLEM
- TREAT THE ENERGY PROBLEM
- PAYMENT ASSISTANCE TARGETING
- USE EFFICIENCY FOCUSED ON HIGH IMPACT HOUSEHOLDS
- HYBRID PROGRAM
- MAXIMIZED GENERAL REVENUE RETURN
- WELL TARGETED ASSISTANCE AND EFFICIENCY

## IMPACT OF CARBON CONTROL ON LOW-INCOME HOUSEHOLDS BY MAJOR EXPENSE CATEGORY

- Average Household Impact- $789
- Average Annual Household Income- $16,450

-   IN 2030 IN 2006 DOLLARS

## DISTRIBUTION OF LOW-INCOME RESIDENTIAL BILL

- INCREASES AS A RESULT OF CAP-AND-TRADE IN 2030

- 2006 DOLLARS

## SOURCE: ORNL PROJECTIONS BASED ON EIA ANALYSIS OF S.2191

## SOURCE: ORNL PROJECTIONS BASED ON EIA ANALYSIS OF S.280

## IMPACT OF CAP-AND-TRADE ON LOW-INCOME GASOLINE

- EXPENDITURES FOR HOUSEHOLDS WITH VEHICLES IN 2030

## AGE OF AUTO FLEET BY INCOME GROUPBASED ON 2001 SURVEY DATA

- BY HOUSEHOLD INCOME AS A PERCENT OF POVERTY

## CHARACTERISTICS OF HIGH-IMPACT HOUSEHOLDS

- HIGHER ELECTRICITY CONSUMPTION
- 	10,391 kWh compared to 8,871 kWh
- HIGHER TOTAL ENERGY CONSUMPTION
- 	154.2 MBtu compared to 86.6 MBtu
- HIGHER CONCENTRATION IN DETACHED HOUSING STOCK
- 	74 Percent compared to 54 percent

## CHARACTERISTICS OF GASOLINE CONSUMERS

- HIGH-IMPACT HOUSEHOLDS WILL EXPERIENCE AN AVERAGE INCREASE OF $818 PER YEAR IN 2030
- RURAL CONSUMERS WILL FACE AN INCREASE OF $456 PER YEAR COMPARED TO $276 FOR URBAN DRIVERS.
- 19% OF LOW-INCOME HOUSEHOLDS DON’T HAVE CARS AT ALL COMPARED TO 3% OF NON-LOW-INCOME HOUSEHOLDS

## CONCLUSIONS

- The Impact Of Carbon Control On Low-Income Households Will Be Significant But Will Take A Long Time To Emerge, Creating A Window Of Opportunity.
- General Income Transfers Would Fail To Adequately Address Energy-Specific Impacts.
- Appropriately Funded Low-Income Energy Assistance Has A Significant Role To Play.
- The Energy Usage Profile Of High-Impact Low-Income Households Mean They Stand to Benefit Substantially From Energy Efficiency Investments.

## OTHER APPROACHES

- VOLUNTARY CARBON MARKETS
- No pot of gold at the end of the rainbow
- REGIONAL CAP-AND-TRADE
- Many of the same design issues as federal with no assurance of equity
- RENEWABLE PORTFOLIO STANDARDS
- Hidden costs with minimal equity recognition