CBO released its cost estimate of Kerry-Lieberman American Power Act today.  It can be found here:  http://www.cbo.gov/ftpdocs/115xx/doc11565/AmericanPowerActKerryLtr.pdf. The numbers are fairly close to CBO’s Waxman-Markey (H.R. 2998) and Kerry-Boxer (S. 1733) numbers earlier this Congress.  Here are some initial thoughts and highlights:

• CBO confirms Kerry-Lieberman will include massive new taxes and spending.
  • CBO and the Joint Committee on Taxation (JCT) estimate that over the 2011-2020 period:
    •  This new national energy tax would generate $765 billion in revenues resulting from a cap-and-trade scheme imposed on energy consumers.
    • The federal government would then redistribute nearly all of these revenues ($732 billion) over the 10-year period.
    • While the bill reduces the deficit by $19 billion, it does so only after imposing a massive $765 billion cap-and-trade tax on the economy. After the bill spends this revenue on various programs, only 2.5% of the cap-and-trade revenue remains for deficit reduction.
    • CBO’s accounts for a decrease in federal income and payroll taxes as a result of the cap-and-trade scheme, correlating to reduced income for workers and business owners. 

• It is important to note that the cap-and-trade scheme is a 40 year program and CBO’s estimates only address the first 10 years, therefore consumer costs for the program will likely be in the trillions of dollars.

• More analysis of the assumptions underlying the estimated allowance prices ($14 in 2012 and $25 in 2020) are needed, as any one or several could dramatically alter the estimate.  The five variables that comprise the basis for the assumption on allowance price are extremely dynamic and the impacts of each are not included in the cursory letter released today.
  • For example, recent analysis from the Institute for Energy Research  http://www.instituteforenergyresearch.org/wp-content/uploads/2010/06/KL-APA-Final-Study.pdf estimates that Kerry-Lieberman’s new national energy tax would:
    • Reduce U.S. employment by approximately 522,000 jobs in 2010, rising to over 5.1 million jobs by 2050. 
    • Households would face $1,042 per year in costs, disproportionately borne by low-income households by 2020.

• What do energy consumers get in return for this monumental new energy tax to reduce GHG emissions by 83% in 2050? According to an analysis by climatologist Paul C. Knappenberger, the global temperature reduction from Kerry-Lieberman would be 0.077 degrees Fahrenheit by 2050 and 0.200 degrees by 2100.5.  http://www.masterresource.org/2010/05/the-american-power-act-a-climate-dud. Two critical reasons for such a negligible environmental impact are China’s and India’s carbon emissions which continue to grow despite OECD and Russia recession-induced GHG emissions. http://blogs.ft.com/energy-source/2010/07/05/china-and-india-the-co2-culprits-of-2009/.