What’s cap-and-trade? Well, cap-and-trade policies set a limit or “cap” on the total amount of greenhouse gases that businesses are allowed to emit, essentially creating a new commodity by distributing allowances for polluting. Cap-and-trade policies are getting attention at both the regional and federal level. For example, President Obama’s recent budget proposal would implement a cap-and-trade system where 100% of emissions allowances would be auctioned off to pollution sources such as power plants, industries and refineries. Auctioning off these allowances, or permissions to pollute, could generate billions of dollars in new revenue.
Obviously, there is an urgent need to find ways to limit greenhouse gas emissions. However, we should be careful to protect low and moderate-income consumers from the potential burden of higher energy prices. For those in the lowest income quintile with an average annual income of below $27,500, even a 15% reduction in emissions could cost an average of $750 in increased energy costs.
The good news is we can both decrease greenhouse gas emissions and protect vulnerable consumers.
The Center on Budget and Policy Priorities, for example, recently recommended one option: a “climate rebate.” A climate rebate can be funded with revenues raised from auctioning off emissions allowances. For low-income families, the rebate can be distributed using existing systems including the Electronic Benefit Transfer (EBT) systems and the Earned Income Tax Credit (EITC). For middle-income families, a climate tax credit would be a more appropriate vehicle.
Of course, there are also other options. The key, however, is that we must auction allowances to raise revenues to help mitigate the financial impact on low- and moderate-income families. If we just give those allowances away to the pollution-generating businesses, we won’t have the resources to help.
The debate on cap-and-trade policy is really heating up, so it is important for people who are concerned about low- and moderate-income families to start taking notice and start actively supporting greenhouse gas policies that will both protect the environment and protect vulnerable families.
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