CBO Stunner: Kerry-Boxer Clean Energy Jobs and American Power Act cuts the deficit

The Congressional Budget Office — the arbiter of the federal budget impact of all legislation — just released an analysis that the Clean Energy Jobs and American Power Act, S. 1733,

“… would reduce budget deficits (or increase future surpluses) by about $21 billion over the 2010–2019 period”¦ In years after 2019, direct spending would be less than the net revenues attributable to the legislation in each of the 10-year periods following 2019. Therefore, CBO estimates that enacting S. 1733 would not increase the deficit in any of the four 10-year periods following 2019.”

This is crucial given that the annual budget deficit has exploded due to spending for two wars, prevention of the financial system collapse, and the American Recovery and Reinvestment Act, which has created thousands of jobs during this horrible recession that begun during President George W. Bush’s last year in office.

Obviously, the projected $21 billion budget cut pales in comparison to the $1.2 trillion deficit. Nonetheless, this cut is another benefit of legislation that would create clean energy jobs, reduce oil use, and global warming pollution. Despite false attacks by ex Alaska Governor Sarah Palin, this clean energy and global warming bill is “cap and cut,” not “cap and tax.”

This clean energy bill, sponsored by Senators John Kerry (D-MA) and Barbara Boxer (D-CA), is modeled on the American Clean Energy and Security Act, H.R. 2454, which passed the House of Representatives on June 26, 2009. CBO determined that H.R. 2454 “would reduce would reduce future budget”¦.by about $9 billion over the 2010–2019 period.” In other words, S. 1733 would make a twice as big cut in the deficit compared to its House companion. This is primarily due to the more ambitious pollution cuts under S. 1733, which lead to slight higher allowance prices.

Both bills have provisions to contain costs if allowance prices should rise too high. Under H.R. 2454, the cost containment measures would take effect if allowance prices reached $38 per ton in 2020 (for example, using CBO projections for estimate.) The cost containment provisions in S. 1733 would begin in 2020 if allowance prices reach $44 per ton plus inflation from 2011–2020. In other words, CBO predicts that the price of pollution allowances would be far below the level set for cost containment measures.

CBO Estimates of Greenhouse Gas Allowance Prices

Bill201120122013201420152016201720182019H.R. 2454$15$16$17$18$19$21$22$24$26S. 1733$17$18$20$21$23$25$26$28$30There are other significant findings in the CBO analysis. The analysis debunks many claims made by critics of the bill.

  • CLAIM: S. 1733 would cover thousands and thousands of small industrial and business facilities.

CBO FOUND: “About 7,400 facilities would be covered by the cap and trade program established by the bill.”

  • CLAIM: It does not cover enough U.S. pollution.

CBO FOUND: “The programs would cover about 72 percent of U.S. emissions of GHGs [greenhouse gases] in 2012”¦and about 86 percent in 2020.”

  • CLAIM: It would not achieve significant pollution reductions by 2020.

CBO FOUND: “By 2019, covered entities would undertake significantly more mitigation than necessary to meet their annual emission caps” due to the provision that allows “banking” of pollution allowances.

  • CLAIM: The bill would lead to too many domestic and international offsets rather than reductions in pollution from industrial sources.

CBO FOUND: “Covered entities would use domestic offsets to substitute for about 300 million allowances in 2012 and nearly 400 million allowances by 2020”¦Covered entities would use international offsets in lieu of about 200 million allowances in 2012 and in lieu of about 300 million allowances in 2020. “ This is about 25 percent of the potential allowances in 2012, and slight more than one-third allowed in 2020.

The bottom line from this CBO analysis is that the Clean Energy Jobs and American Power Act would:

  • cut the federal budget deficit;
  • have relatively low clean up costs;
  • apply to only a limited number of very large polluters but most of the pollution; and,
  • lead to meaningful, real pollution reductions from these sources rather than primarily relying on offsets.

This bill is an effective platform to build on as Senators John Kerry (D-MA), Lindsay Graham (R-SC), and Joe Lieberman (D-CT) build clean energy and global warming legislation to bring to the Senate floor. S. 1733 is also another signal to the international community that the U.S. is serious about achievement of real reductions in its global warming pollution.