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THE IMPACT OF A CARBON CONTROL PROGRAM ON LOW-INCOME CONSUMERS

THE IMPACT OF A CARBON CONTROL PROGRAM ON LOW-INCOME CONSUMERS. October, 2008. Joel Eisenberg ORNL. Eisenbergjf@ornl.gov 202 479 0439. http://weatherization.ornl.gov. SOURCE: INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE. “The United States accounts for nearly as many emissions as the

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THE IMPACT OF A CARBON CONTROL PROGRAM ON LOW-INCOME CONSUMERS

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  1. THE IMPACT OF A CARBON CONTROL PROGRAM ON LOW-INCOME CONSUMERS October, 2008 Joel Eisenberg ORNL Eisenbergjf@ornl.gov 202 479 0439 http://weatherization.ornl.gov

  2. SOURCE: INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE

  3. “The United States accounts for nearly as many emissions as the former Soviet bloc, the Middle East, Central and South America, and Africa combined. Use of fossil fuel in the United States is split roughly into three categories: commercial and residential buildings and appliances, industry, and transportation. More than a third of that fuel is used to generate electricity, two thirds of which goes to buildings and one third to industry.” SOURCE: THE CONGRESSIONAL BUDGET OFFICE

  4. ALTERNATIVE CONTROL MECHANISMS • VOLUNTARY MARKETS • RENEWABLE PORTFOLIO STANDARDS- RPS • COMPREHENSIVE EFFICIENCY INVESTMENTS • CORPORATE AVERAGE FUEL EFFICIENCY-CAFE • CARBON TAX • CAP-AND-TRADE

  5. WHAT IS “CAP-AND-TRADE”? • IT IS A MECHANISM TO REGULATE CARBON EMISSIONS AND USE MARKET TRADING TO REDUCE THE COST. • THE CAP- TOTAL EMISSIONS OF GREENHOUSE GASES WOULD BE LIMITED AND GRADUALLY REDUCED. • REGULATED ENTITIES WOULD BE REQUIRED TO HOLD PERMITS (ALLOWANCES), EACH ALLOWING THEM TO EMIT A TON OF CO2 PER YEAR UNDER THE CAP. • THE TRADE- PERMIT HOLDERS WOULD BE FREE TO BUY AND SELL ALLOWANCES IN AN OPEN MARKET. • OFFSETS-FOREIGN OR DOMESTIC- MIGHT BE USED TO REDUCE ALLOWANCE REQUIREMENTS.

  6. CAP-AND-TRADE DESIGN ISSUES • HOW HIGH A COST ARE WE WILLING TO PAY? • WHO WILL NEED A PERMIT? • HOW WILL ALLOWANCES BE ALLOCATED? • HOW WILL DISTRIBUTIVE ISSUES BE ADDRESSED?

  7. WHO WILL NEED A PERMIT? • UPSTREAM • COMPREHENSIVE COVERAGE • SIMPLICITY OF ADMINISTRATION • MIDSTREAM • TARGETED IMPACT • FOCUSED DECISION MAKING • DOWNSTREAM • POINT OF PRICE IMPACT • ADMINISTRATIVE NIGHTMARE

  8. HOW WILL PERMITS BE ALLOCATED? • HISTORICAL-USAGE ALLOCATION • LOW REVENUE FLOW • REDUCED INITIAL IMPACT • PURE AUCTION • HIGHEST CONSUMER IMPACT • GREATEST EFFICIENCY & REVENUE • MIXED AUCTION/PUBLIC INTEREST • ECONOMIC EFFICIENCY • POLITICAL RESOURCE ALLOCATION

  9. DISTRIBUTIVE IMPACT OF $15 PER TON CARBON TAX SOURCE: BROOKINGS INSTITUTION-HAMILTON PROJECT

  10. SOURCE: ORNL CALCULATIONS BASED ON EIA ANALYSIS OF S.280

  11. IMPACT OF CARBON CONTROL ON LOW-INCOME HOUSEHOLDS BY MAJOR EXPENSE CATEGORY IN 2030 IN 2005 DOLLARS Average Household Impact- $789

  12. HOW WILL DISTRIBUTIVE ISSUES BE ADDRESSED? • MAXIMIZE REVENUE RESTORATION • GET AS MUCH AS POSSIBLE IN CONSUMER HANDS • TREAT THIS AS AN INCOME PROBLEM • TREAT THE ENERGY PROBLEM • PAYMENT ASSISTANCE TARGETING • USE EFFICIENCY FOCUSED ON HIGH IMPACT HOUSEHOLDS • HYBRID PROGRAM • MAXIMIZED GENERAL REVENUE RETURN • WELL TARGETED ASSISTANCE AND EFFICIENCY

  13. Histogram 6000000 Upper 25% Of Households At Or Above $308 5000000 4000000 3000000 2000000 1000000 Mean = $225 .Median = $181 0 NUMBER OF HOUSEHOLDS 350 -100 . . 700. 500. 800. 150 600 250 50 0. FIGURE 1 DISTRIBUTION OF LOW-INCOME RESIDENTIAL BLL INCREASES AS A RESULT OF CAP-AND-TRADE IN 2030 ($2006)

  14. CHARACTERISTICS OF HIGH-IMPACT HOUSEHOLDS • HIGHER ELECTRICITY CONSUMPTION 16,179 kWh compared to 8,971 kWh • HIGHER TOTAL ENERGY CONSUMPTION 116.3 MBtu compared to 86.6 MBtu • HIGHER CONCENTRATION IN DETACHED HOUSING STOCK 81 Percent compared to 54 percent

  15. THE EARLY DEBATE • Inclination To General Income Maintenance • Inclination To Utility Funding For Low-Income Programs • A Lot Of Revenue And A Lot Of Special Interests • It Looks A Lot Like Health Care During The First Clinton Term

  16. CONCLUSIONS • The Impact Of Carbon Control On Low-Income Households Will Be Significant But Will Take A Long Time To Emerge, Creating A Window Of Opportunity. • General Income Transfers Would Fail To Adequately Address Energy-Specific Impacts. • Appropriately Funded Low-Income Energy Assistance Has A Significant Role To Play. • The Energy Usage Profile Of High-Impact Low-Income Households Mean They Stand to Benefit Substantially From Energy Efficiency Investments.

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