The Congressional Budget Office (CBO) estimates that the U.S. cap-and-trade program will cost $22 billion annually, or about $175 per household, by 2020.
This figure includes the cost of restructuring the production and use of energy and of payments made to foreign entities under the program, reports CBO. However, it does not include the economic benefits and other benefits of the reduction in GHG emissions and the associated slowing of climate change, according to the CBO analysis.
The CBO report examines the average cost per household that would result from the implementation of the GHG cap-and-trade program under H.R. 2454, as well as how that cost would be spread among households with different levels of income.
Reducing emissions of GHGs would moderate the damage associated with climate change and the risk of significant damage, but it would also impose costs on the economy, reports CBO. In the case of carbon dioxide CO2 — which accounts for 85 percent of U.S. GHG emissions — higher costs would stem from the fact that most economic activity is based on fossil fuels that contain carbon and produce GHG emissions when burned, according to the analysis.
Under cap-and-trade, the federal government would put a limit on greenhouse gases from most sectors of the U.S. economy with the cap divided into billions of permits, reports Bloomberg News. Each permit is equivalent to one metric ton of carbon dioxide. CBO estimates that the price of an allowance would be $28 in 2020.
By annually reducing the supply of these permits, the cap-and-trade legislation written by House Democrats Henry Waxman of California and Ed Markey of Massachusetts would lower the limit on greenhouse gases to 17 percent less than 2005 levels by 2020, according to Bloomberg News.
The CBO analysis estimates that the legislation will cost the richest U.S. households $245 a year, and the poorest will see gains of $40 a year.