**GAO-09-950T**                      Published: Aug 04, 2009. Publicly Released: Aug 04, 2009.                  

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## Highlights

Congress is considering proposals to establish a price on greenhouse gas emissions through a cap-and-trade program that would limit overall emissions and require covered entities to hold tradable emissions permits, or allowances, for their emissions. The purpose of such a program is to raise the cost of activities that produce emissions and thereby provide an economic incentive to decrease emissions. Carbon dioxide, which results from burning fossil fuels, is the primary greenhouse gas and accounts for about 80 percent of U.S. emissions. A cap-and-trade program would increase the cost of burning fossil fuels and other activities that generate emissions and potentially raise costs for consumers. A key decision is the extent to which the government offsets these costs. For example, the government could sell the allowances and then return the revenues to covered entities or households. The government could also give away some or all of the allowances. According to the Congressional Budget Office, the value of the allowances could total $300 billion annually by 2020. Today's testimony provides preliminary results of ongoing work assessing the potential effects of (1) allowance allocation methods, and (2) options for distributing program revenues or the economic value of allowances. GAO reviewed economic literature and interviewed experts in climate policy, including those involved in existing cap-and-trade programs.

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## Topics

Natural Resources and Environment

Allocation (Government accounting)Allowable costsAllowancesClimate changeConsumer educationConsumption taxesCost analysisEconomic analysisEmissions tradingEnergy costsFinancial analysisGreenhouse gasesOffsets (accounting)Program evaluationProposed legislationIncentives