Closing the gap
The bill's burden is the difference between expected annual U.S. greenhouse gas emissions and limits set by the cap, which squeeze harder each year of the program. Point Carbon estimates that gap would start at 205 million tons of CO2 and rise to 1.4 billion tons in 2020. Other energy policy actions could shrink the gap.
Shortages of available offsets would widen it.
The U.S. EPA's analysis of the "Lieberman-Warner Climate Security Act of 2007" said that the price of allowances would rise by 34 percent if international offsets were not allowed, while barring all offsets would increase the price by 93 percent. The House bill permits domestic and international offsets. But it does not spell out how allowances will be defined and regulated, leaving that to EPA, and thus leaving a potentially big question mark over the policy's ultimate cost, as well.
In 2016, the U.S. economy would produce an estimated 7.3 billion tons of CO2, based on current growth forecasts. Power generators and other business sectors covered by the Waxman-Markey bill would put out 6 billion tons of emissions under business as usual.
But the cap would restrict their emissions to 5.3 billion tons. Companies could close the gap, 784 million tons, by reducing emissions, shutting down some operations, switching to cheaper fuels, buying allowances from companies that did not need them, or making carbon emission offsets.
Allowance trading could result in a price of between $15 and $20 per ton of carbon emissions in 2016, various analysts predict, making the value of allowances that year between $80 billion and $108 billion.
In that year, all of the allocations would be given away: The electricity industry would get 35 percent; local natural gas distributors, 9 percent; "trade exposed" industries, 14.2 percent; oil refiners, 2 percent; automobile manufacturers, 3 percent; and energy companies investing in carbon capture and storage, 2 percent.
A sizable share of that year's allowances would go to others in the economy that were not considered greenhouse gas sources, including 15 percent for low- and moderate-income households, 1 percent as research grants to universities, 5 percent for tropical forest preservation, and 0.5 percent for worker assistance and job training. These carbon emission permits could be also sold to industries and power generators that need them.