Edison Electric Institute (EEI) member companies support action to lower the country’s carbon and other greenhouse gas (GHG) emissions by 80% from current levels by 2050. And we want to do so in a way that softens electricity price increases for families and our energy-intensive customers, such as chemical manufacturers. A critical factor for achieving this goal within a federal cap-and-trade program is by allocating rather than auctioning emissions allowances.
Under a cap-and-trade program, the government sets a national cap on GHG emissions. Over time, this cap becomes lower until the ultimate GHG reduction goal is met. The government would create allowances for electric utilities and others to emit GHG emissions under the cap. The method by which the government initially introduces these allowances into the market — by allocation or auction — is crucial.
Auctioning allowances sharply increase costs by requiring companies to pay both for the allowances and for the cost of actually reducing emissions. All of these costs would be passed on to consumers. In contrast, if allowances are allocated, only the costs of actually reducing emissions are passed along.
A portion of the revenue raised through an auction may be returned to customers via a tax rebate. But this isn’t an efficient mechanism for channeling relief to all customers. Nor is it assured that all of the revenue raised would be directed to mitigating energy prices or developing the technologies that we as a nation need to transition to a vibrant, low-carbon economy.
Support is growing for allocating allowances. The U.S. Climate Action Partnership — an alliance of major businesses, such as Dow and DuPont, as well as leading climate and environmental groups — is in favor of allocating emissions allowances. So is the Pew Center on Global Climate Change, the National Association of Regulatory Utility Commissioners, and a number of labor groups among others.
Although additional measures will certainly need to play roles in lessening energy cost increases under a national climate change program, allocating emissions allowances will be vital. Please contact your members of Congress and ask that they support allocating allowances in any climate change legislation. For more information on EEI and its climate principles, please visit www.eei.org/climate.