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

1 Managed by UT-Battelle for the Department of Energy

THE IMPACT OF A CARBON CONTROL PROGRAM ON LOW-INCOME

CONSUMERS

Joel EisenbergORNL

[email protected] 479 0439

October, 2008

http://weatherization.ornl.gov

SOURCE: INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE

“The United States accounts for nearly as many emissions as theformer Soviet bloc, the Middle East, Central and South America,and Africa combined. Use of fossil fuel in the United States is splitroughly into three categories: commercial and residential buildingsand appliances, industry, and transportation. More than a thirdof that fuel is used to generate electricity, two thirds of which goesto buildings and one third to industry.”

SOURCE: THE CONGRESSIONAL BUDGET OFFICE

ALTERNATIVE CONTROL MECHANISMS

• VOLUNTARY MARKETS• RENEWABLE PORTFOLIO STANDARDS-

RPS• COMPREHENSIVE EFFICIENCY

INVESTMENTS• CORPORATE AVERAGE FUEL

EFFICIENCY-CAFE• CARBON TAX• CAP-AND-TRADE

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.

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?

WHO WILL NEED A PERMIT?

• UPSTREAM– COMPREHENSIVE COVERAGE– SIMPLICITY OF ADMINISTRATION

• MIDSTREAM– TARGETED IMPACT– FOCUSED DECISION MAKING

• DOWNSTREAM– POINT OF PRICE IMPACT– ADMINISTRATIVE NIGHTMARE

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

DISTRIBUTIVE IMPACT OF $15 PER TON CARBON TAX

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

1st Decile 5th Decile 9th Decile

Change InIncome

SOURCE: BROOKINGS INSTITUTION-HAMILTON PROJECT

Mean Low-Income Residential Electricity ExpendituresPer Household With And Without A Cap-And Trade In

2030By Primary Household Heating Fuel ($2005)

Year Natural Gas Propane Fuel Oil Electricity All

Base-line

$705 $1,050 $885 $1,018 $833

Cap & Trade

$848 $1,310 $1,028 $1,219 $1,000

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

$225

$314

$250

ResidentialAutomotiveGeneral

Average Household Impact- $789

IMPACT OF CARBON CONTROL ON LOW-INCOME HOUSEHOLDS BY MAJOR EXPENSE CATEGORY

IN 2030 IN 2005 DOLLARS

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

800.700.

.600.500.

350250

150500.-100

Histogram

6000000

5000000

4000000

3000000

2000000

1000000

0

Mean = $225

.Median = $181NUMBER OF HOUSEHOLDS

Upper 25% Of Households At Or Above $308

FIGURE 1DISTRIBUTION OF LOW-INCOME RESIDENTIAL BLL INCREASES AS

A RESULT OF CAP-AND-TRADE IN 2030 

($2006)  

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

LOCATION OF ALL LOW-INCOME HOUSEHOLDSAND HIGH -IMPACT LOW-INCOME HOUSEHOLDS

Percent By Region

All Low-Income 20.2% 22.0% 35.7% 22.1%

High-Impact 19.2% 48.1% 19.2% 13.5%

Northeast Midwest South West

CHARACTERISTICS OF HIGH-IMPACT HOUSEHOLDS

• HIGHER ELECTRICITY CONSUMPTION16,179 kWh compared to 8,971 kWh

• HIGHER TOTAL ENERGY CONSUMPTION116.3 MBtu compared to 86.6 MBtu

• HIGHER CONCENTRATION IN DETACHED HOUSING STOCK81 Percent compared to 54 percent

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

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.