The cost of energy for consumers would be driven higher in President Barack Obama’s proposed budget by a carbon cap-and-trade system that is projected to raise about $80 billion a year starting in 2012.
The budget assumes the U.S. adopts the cap-and-trade system that would set limits on the amount of carbon dioxide and other greenhouse gases that industries can emit, and allow companies to buy and sell rights to emit those gases. The budget assumes a starting price of $20 per ton for carbon emissions, an amount that Mr. Obama’s aides says is conservative and would likely rise.
The budget projects raising $645 billion from the auction of emissions credits between 2012, when the system kicks in, and 2019. Mr. Obama would use some of that money to pay for about $120 billion of spending on various low-carbon technologies over that time. The rest of the money — about $525 billion — would be retuned “to the people, especially vulnerable families, communities and businesses to help the transition to a clean energy economy,” according to Mr. Obama’s proposal.
The cap-and-trade system is a key part of Mr. Obama’s broader strategy to reduce U.S. emissions of carbon dioxide by roughly 80% from 2005 levels by 2050. To help achieve that goal, Mr. Obama wants to spend some of the money raised through the auction of emissions permits for research and development of low-carbon energy technologies, such as windmills, electric cars or more efficient power grids and buildings.
But some question the government’s ability to spend all that money wisely. It is also unclear whether lawmakers will be able to resist diverting money to causes that have little to do with fighting climate change, such as deficit reduction.
“Let’s just be honest and call it a carbon tax that will increase taxes on all Americans who drive a car, who have a job, who turn on a light switch, pure and simple,” said the Republican leader in the House, Rep. John Boehner of Ohio.
A fundamental question is how the government will distribute the billions of dollars in revenue generated through a emissions trading system. Lawmakers from states dependent on coal and heavy manufacturing are expected to demand that more money go toward their constituents, since they will experience higher costs associated with the transition to low-carbon energy sources.
Mr. Obama’s aides say his plan would provide a refundable tax credit of up to $400 for working individuals and $800 for working families. The credits would phase out between $150,000 and $200,000 for a married couple, and between $75,000 and $100,000 for an individual.
“This is going to change the distribution of wealth potentially for a century,” said Dallas Burtraw, an economist at Resources for the Future, a nonpartisan Washington think tank.
Mr. Obama’s budget also calls for new fees and taxes on oil companies that drill on federal lands, and for closing various tax credits that the industry currently qualifies for — a step the administration says would raise about $30 billion over a decade. Beginning in 2011, Mr. Obama would assess a new excise tax on oil and gas production in the Gulf of Mexico to close what Mr. Obama’s aides say are loopholes that have give companies “excessive royalty relief.”
Oil-industry officials said Mr. Obama’s proposals would encourage the industry to shift production — and jobs — abroad. “With America in the midst of an economic recession, now is not the time to impose new taxes on the nation’s oil and natural gas industry,” Jack Gerard, president of the American Petroleum Institute, said in a written statement.