Letter to Chairman Rangel - Help Improve Climate Legislation

Jun 1, 2009

June 2, 2009

The Honorable Charles Rangel
Chairman, Committee on Ways and Means
United States House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Rangel:

On behalf of thousands of members and supporters, we applaud your leadership in crafting policies that address climate change. We look forward to working with you and other members of your committee in establishing comprehensive climate legislation that auctions pollution permits as we believe that auctioning permits provides the only effective and fair way to structure climate legislation to ensure adequate consumer protection.

The energy legislation adopted by the Energy and Commerce Committee, on the other hand, freely allocates a majority of the pollution permits to utilities and industries. Some of these giveaways would result in a transfer of wealth from ordinary households to industry stakeholders without providing consumers any relief from higher energy prices. Utilities are supposed to use the free permits they receive to benefit their customers, but it is questionable how much of the value of these permits will actually flow through to consumers.

We are not alone in this conclusion. As the Environmental Protection Agency’s analysis of the Waxman/Markey proposal points out, “Freely distributed allowances to firms tends to be very regressive” and “[free allowances to utilities] makes the cap-and-trade more costly overall.”

The economics of auctions are abundantly clear. More than 600 economists signed a letter this spring warning that free pollution permits to companies will provide windfall profits while depriving the government and taxpayers of the resources necessary to offset the transition to a new energy economy.

Without auctions, consumers, including the most vulnerable populations, will bear the transition cost with little prospect for relief. Dr. Peter Orszag, current Director of the Office of Management and Budget and former director of the Congressional Budget Office, warned in his November 2007 testimony to the House Budget Committee:

“Even if the companies received allowances for free, they would still raise prices to their customers because the cost of using an emission allowance for production – rather than selling it to another firm – would be embodied in the prices that they would charge for their goods and services. The resulting price increases would disproportionately affect people at the lower end of the income scale.” – Peter Orszag, 11/1/07

A key component of the debate about a cap-and-trade program has centered on how best to protect low and moderate-income consumers who are most affected by increased energy costs. However, the legislation adopted by the House Energy and Commerce Committee auctions only 15% of the pollution permits for direct consumer assistance. While that will likely be enough to protect low-income households, it is not enough to establish a broad energy rebate program.

We are pleased that several members of the Ways and Means Committee have proposed legislation calling for much more progressive levels of auctions. Each of these options would be an improvement over currently-debated energy legislation, and the legislation authored by Representative Chris Van Hollen (D-MD) represents an economically just means of capping greenhouse gas emissions, while protecting consumers from higher energy costs. The legislation, H.R. 1862, begins by auctioning 100 percent of carbon permits, and it returns the proceeds from the auctions to consumers to compensate them for higher energy prices.

We believe that auctioning pollution permits and returning most or all of the proceeds to consumers to be the simplest, fairest and most economically sound means of protecting consumers in climate legislation. We are committed to addressing the challenges of climate change, and we appreciate the leadership role you have taken on these and other important issues. We look forward to working closely with you and other members of the Committee to address this challenge in a way that is fair, effective, and economically
prudent.

Sincerely,

Alliance for Affordable Energy, Louisiana
Am Kolel Jewish Renewal Center, Maryland
Chesapeake Climate Action Network
Citizens for Pennsylvania’s Future (PennFuture)
Climate Protection Campaign, California
Faiths United for Sustainable Energy, Florida
Fresh Energy, Minnesota
Friends Committee on National Legislation
Global Warming Education Network, Massachusetts
Green Living and Energy Education, Florida
Jews of the Earth, Colorado
KyotoUSA
Montana Environmental Information Center
North Carolina Interfaith Power and Light, a program of the N.C. Council of Churches
New Energy Economy, New Mexico
New York Public Interest Research Group
Ohio Citizen Action
Pennsylvania Interfaith Climate Change Campaign
Post Carbon Institute
Redwood Alliance Climate Action Project, California
Southern Alliance for Clean Energy
South Carolina Coastal Conservation League
The Shalom Center
Texas Climate Emergency Campaign
Tomales Bay Institute, California
TrueMajority.org/US Action
Unitarian Universalist Ministry for Earth