Minimizing the Pain of Federal Climate

LegislationJennifer KeferSenior Climate Advisor

Center on Budget and Policy Priorities

www.cbpp.org

Minimizing the Pain

• Economic effects of climate change legislation

• Guiding principles for consumer relief

• Consumer relief in American Clean Energy and Security Act (HR 2454)

• Next steps

Climate Legislation Has Costs

• Effective legislation will increase the cost of basic goods

• Low-income households will be disproportionately burdened by this increase

• Well-designed legislation can offset these costs

Gross Costs as Share of After-Tax Income

Source: Congressional Budget Office, based on 2020 program provisions applied to 2010 income levels

High-Income Households Fare Better than Middle-Income

Households

Source: Congressional Budget Office, based on 2020 program provisions applied to 2010 income levels

Net Impact of House Bill as a Percentage of After-Tax Income, by Income Group

Guiding Principles for Consumer Relief

1. Protect the most vulnerable households2. Use mechanisms that reach all or nearly all

eligible households3. Minimize red tape4. Preserve economic incentives to reduce energy

use efficiently5. Do not focus solely on utility bills

Do Not Focus Solely on Utility Bills

Source: CBPP calculations based on Consumer Expenditure Survey and CBO methodology

Distribution of Cost Increase by Product for Bottom Quintile

Direct Consumer Assistance in House Bill

Proceeds from the sale of 15 percent of the allowances offset higher costs for low-income households through two delivery mechanisms:

1. Energy Rebate

2. Earned Income Tax Credit Expansion for Childless Workers

How Does the House Bill Measure Up?

1. Protect the most vulnerable households√ Fully protects average low-income households – Insufficient relief for those with above-

average costs– Limited protection for moderate-income

households

2. Reach all or nearly all eligible households√ Multiple mechanisms increase enrollment

3. Minimize red tape√ Relies on existing delivery mechanisms

How Does the House Bill Measure Up?

4. Do not focus solely on utility bills√ Includes direct consumer relief– Allocates a large portion of allowances to

utilities

5. Preserve economic incentives– Utility relief blunts price signal√ Size of rebate not tied to energy consumption

How to Improve in the Senate

•Preserve 15 percent for consumer relief.

• Provide designated funding for the Low-Income Home Energy Assistance Program (LIHEAP).

• Provide administrative funds to help states with the costs of operating the program.

•Redirect a portion of the allocation to LDC business customers and extend well-targeted direct consumer relief to moderate-income families.

High-Income Households Fare Better than Middle-Income Households

Source: Congressional Budget Office, based on 2020 program provisions applied to 2010 income levels

Net Impact of House Bill as a Percentage of After-Tax Income, by Income Group

Next Steps

• House passage (June 2009)

• Environment and Public Works committee

• Finance Committee

• Copenhagen

Jennifer KeferSenior Climate Advisor

Center on Budget and Policy Priorities Phone: 202-408-1080

E-mail: kefer@cbpp.org www.cbpp.org