Climate Change Legislation: Allowance and Revenue Distribution

Aug 4, 2009 | Dallas Burtraw
U.S. Senate Committee on Finance


This testimony focuses on the allocation of emissions allowances to consumers through their local distribution companies. This provision and some other features of the proposal are designed to protect consumers from the adverse impacts of price increases and reduceregional inequities. However, this approach also raises the overall cost of achieving emissions reductions. The degree to which it raises the costs will depend on how public utility commissions at the state level incorporate the allowance value into their ratedesign. The outcome at this juncture is uncertain and beyond the reach of legislative language included in H.R. 2454.I consider incremental changes to the allocation formula. A simple per-household rebate of allowance revenue raised by the government through auction, coupled with a more moderate allocation to local distribution companies, can achieve distributional and regional goals at less cost and with greater administrative simplicity and predictability. In this framework, there may still be a role for limited allocation to local distribution companies on behalf of residential-class consumers to correct for regional differences inthe cost burden of the program.However, any implementation of free allocation to local distribution companies needs some amendment to the way it is described in H.R. 2454. In addition, the allocation to local distribution companies should phase out a decade earlier than it does currently.