Update: How to Lower Costs of Climate Change Policies for Consumers

The Budget & Policy Center is releasing a new policy brief today on a federal climate rebate proposal. With cap-and-trade legislation currently being drafted in the U.S. House Energy and Commerce Committee, it is critical that lawmakers adequately address the regressive financial impact that any carbon-pricing policy will have on lower and moderate income households. The paper provides a framework for how a climate rebate assisting lower and moderate income households can be integrated into federal climate policy.

A climate rebate represents an effective and efficient strategy for mitigating the household budget impact of a cap-and-trade system. It would utilize existing benefit and tax structures to deliver a cash rebate to lower and moderate income families, would be fully funded from cap-and-trade emission permit revenue, and would reach virtually all eligible families.

An important strength of a climate rebate is that it would address the shortcomings of other consumer assistance proposals, such as a utilities approach. For more information on how a climate rebate would work, please refer to our paper.

Update: Yesterday, the U.S. House Energy and Commerce Committee concluded the markup of the American Clean Energy and Security Act of 2009 (H.R. 2454) by voting to move it out of committee. Introduced by Reps. Henry Waxman (D-CA) and Ed Markey (D-MA), the bill (commonly referred to as Waxman-Markey) would cap the emissions of greenhouse gases in order to curb climate change.

Importantly, the Waxman-Markey bill includes provisions to protect lower income consumers from the financial impact of climate policy, similar to the recommendations outlined in our recent policy brief (based on analysis by the CBPP). In particular, the bill would allocate 15 percent of emission permit revenue to fully offset the average loss in purchasing power for lower income consumers. For more information on the bill, refer to the Center on Budget and Policy Priorities’ recent report.