Assisting Households with the Costs of a Cap-and-Trade Program: Options and Considerations for Congress
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Assisting Households with the Costs of a
Cap-and-Trade Program: Options and
Considerations for Congress
-name redactedAnalyst in Environmental Policy
-name redactedSpecialist in Housing Policy
October 8, 2009
Congressional Research Service
7-....
www.crs.gov
R40841
CRS Report for Congress
Prepared for Members and Committees of Congress
Assisting Households with the Costs of a Cap-and-Trade Program
Summary
By limiting the amount of greenhouse gas (GHG) emissions that can be generated in a given year,
a cap-and-trade program would attach a new cost to activities that generate emissions, primarily
fossil fuel combustion. To the extent they are able, the capped entities (e.g., power plants,
petroleum producers/importers, large industrial facilities) would likely pass on the costs of
complying with a cap-and-trade program to household and business consumers. Thus, a cap-andtrade system is intended (and expected) to increase the price of coal, oil, natural gas, and the
products they help create, including electricity.
Congress can affect the distribution of the costs imposed by an emissions cap through emission
allowance allocation. In a cap-and-trade system, one emission allowance typically represents the
authority to emit one metric ton of GHG emissions. Emission allowances would become a
valuable new commodity, potentially accounting, in aggregate, for tens or hundreds of billions of
dollars. Therefore, when designing a cap-and-trade program, one of the more controversial and
challenging questions for policymakers is how, to whom, and for what purpose to distribute the
emission allowance value—the actual revenue or potential revenue (i.e., the value of the
allowance as an asset) represented by the allowances.
Without redistribution of allowance value, cap-imposed costs would ultimately be borne by
energy consumers, both businesses and households. In particular, lower-income households
would likely bear a disproportionate share of the costs related to an emissions cap, because those
households generally spend a higher percentage of their income on energy-related goods and
services than do higher-income households. Moreover, lower-income households already pay (on
average) a larger share of their income toward the costs of their residential energy and for
gasoline. These households are also less likely to have the financial resources to improve the
energy efficiency of their dwelling units or to purchase energy efficient appliances or cars, which
could help reduce high energy costs. For these and other reasons (including federal precedents),
some have argued that allowance value should be used to alleviate the burden households,
especially lower-income households, would likely face.
Congress would face several questions when seeking to implement this objective. A primary
consideration would be which households or persons should receive allowance value: should
value be distributed evenly to all households, or should particular household groups receive a
higher proportion? Moreover, should policymakers seek to account for different costs that
households in different regions may experience?
Policymakers have a variety of mechanisms they could use to distribute emission allowance value
to provide assistance to households. In evaluating these options, there are a number of
considerations that might be relevant to policymakers in choosing and implementing a
distribution system. Among considerations are the ability of a system to reach large numbers of
households, the existence of an administrative infrastructure and the costs of distributing funds,
and the ease of tailoring benefits to different consumer incomes and regions of the country. This
report examines and compares several mechanisms with these considerations in mind.
In addition, this report outlines how GHG emission reduction legislation in the 111th Congress,
including H.R. 2454, the American Clean Energy and Security Act of 2009, and S. 1733, the
Clean Energy Jobs and American Power Act, would address the potential cap-imposed impacts to
households.
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Assisting Households with the Costs of a Cap-and-Trade Program
Contents
Introduction ................................................................................................................................1
Cap-and-Trade and Household Impacts .......................................................................................3
Emission Allowance Value Distribution.................................................................................4
Cost Pass-Through in a GHG Control Regime.......................................................................5
Illustration of Relative Distribution of Costs....................................................................5
“Free” Allowances to Covered Entities and Cost Pass-Through .......................................6
Potentially Regressive Effects of Cap-and-Trade ...................................................................6
Price Burdens Faced by Low-Income Households ...........................................................7
Estimates of Regressive Impacts from Cap-and-Trade Models.........................................9
Arguments for Alleviating Regressive Impacts .............................................................. 10
Precedents for Alleviating Regressive Impacts .............................................................. 11
Direct Assistance to Households: Considerations....................................................................... 12
Equal Assistance to All Households..................................................................................... 13
Targeted Assistance to Specific Income Groups................................................................... 14
Targeted Assistance Based on Geographical Differences...................................................... 15
Evidence of Different Costs Across Regions.................................................................. 15
Implementation Challenges ........................................................................................... 18
Potential Concerns Regarding Direct Assistance Options..................................................... 19
Mechanisms for Returning Funds to Households ....................................................................... 20
Direct Payments.................................................................................................................. 23
Fund Disbursal Through the Tax System ............................................................................. 25
Allowances to Energy Distributors ...................................................................................... 26
Existing Energy Assistance Programs.................................................................................. 28
The Low Income Home Energy Assistance Program ..................................................... 28
The Weatherization Assistance Program ........................................................................ 30
Subsidies Through Other Income-Based Programs .............................................................. 32
Earned Income Tax Credit............................................................................................. 32
Electronic Benefit Transfer Systems .............................................................................. 33
Legislation in the 111th Congress ............................................................................................... 35
H.R. 2454, the American Clean Energy and Security Act of 2009 ........................................ 35
Assistance to All Households Through Energy Distributors ........................................... 36
Rebates to All Households ............................................................................................ 37
Low-Income Energy Refund Program ........................................................................... 37
Expansion of the EITC.................................................................................................. 41
S. 1733, the Clean Energy Jobs and American Power Act .................................................... 43
Figures
Figure 1. Relative Distribution of Costs Using Emission Allowance Auction ...............................5
Figure 2. 2006 Median Individual Energy Burden .......................................................................8
Figure 3. Estimated Energy Refund Program Benefit for a Household of Four in 2012
Under H.R. 2454 As It Passed the House................................................................................ 40
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Assisting Households with the Costs of a Cap-and-Trade Program
Figure 4. Expansion of the EITC Proposed in H.R. 2454 for Tax Filers Without
Qualifying Children Who Have Experienced a Reduction in Purchasing Power ...................... 42
Tables
Table 1. Consumer Spending on Utilities and Gasoline, 2007 ......................................................9
Table 2. Model Estimates of a Cap-and-Trade Program’s Impacts on Households as a
Percentage of Household Income ........................................................................................... 10
Table 3. Estimates of a Hypothetical Cap-and-Trade Program’s Average Costs Per
Household as a Percentage of Income..................................................................................... 17
Table 4. Congressional Budget Office (CBO) Estimates of the Annual Maximum Benefit
Under the Energy Refund Program of H.R. 2454 as It Passed the House, Selected Years
2012 to 2019.......................................................................................................................... 39
Table A-1. Considerations in Distributing Funds to Households Through Various Methods........ 44
Appendixes
Appendix. Table of Considerations............................................................................................ 44
Contacts
Author Contact Information ...................................................................................................... 46
Acknowledgments .................................................................................................................... 46
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Assisting Households with the Costs of a Cap-and-Trade Program
Introduction
Over the past century, particularly in recent decades, scientists have documented increases in
global temperature and sea levels, decreases of sea ice in the Arctic, and melting of continental
ice sheets and mountain glaciers. There is increasing evidence that human activities are at least
partially responsible for some of these effects.1 This is based upon the combination of two
conclusions. First, global temperature increases are linked in some manner to the measurable
increases of greenhouse gas (GHG)2 concentrations in the atmosphere.3 Second, human activities
(e.g., fossil fuel combustion, industrial processes, and deforestation) have contributed to the
increased concentration of GHG emissions in the earth’s atmosphere.
A variety of efforts that seek to reduce GHG emissions are currently underway or being
developed on the international, national, and sub-national level (e.g., individual state actions or
regional partnerships). One way in which GHG emissions may be reduced is through marketbased approaches,4 such as a cap-and-trade or emission fees (“carbon tax”) system. 5 Recent
legislative proposals6 have generally focused on using these market-based approaches to reduce
GHG emissions, with cap-and-trade approaches generating far more congressional activity in
terms of introduced bills and committee action than carbon taxes.7 As a result, this report uses
both the general term “GHG control program” and the more specific “cap-and-trade program” to
describe proposals to reduce GHG emissions.8
1
According to the Intergovernmental Panel on Climate Change, greenhouse gas (GHG) emissions caused by human
activity have “very likely” contributed to climate change. This report does not address the debates associated with the
climate change science nor the role of human activity. For more information, see CRS Report RL34266, Climate
Change: Science Highlights, by (name redacted).
2
Under the United Nations Framework Convention on Climate Change (UNFCCC), greenhouse gases are carbon
dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur
hexafluoride (SF6). Some greenhouse gases are controlled under the Montreal Protocol on Substances that Deplete the
Ozone Layer, and are not covered under UNFCCC.
3
For example, carbon dioxide, the primary GHG, has risen worldwide from 280 parts per million (ppm) to over 380
ppm over the past 150 years.
4
For a more comprehensive discussion of policy options, see CRS Report RL34513, Climate Change: Current Issues
and Policy Tools, by (name redacted).
5
Preference for a cap-and-trade versus a carbon tax approach ultimately depends on which variable one wants to
control—emissions or costs. Although there are several design mechanisms that could blur the distinction, the gap
between price control and quantity control can never be completely overcome. See CRS Report R40242, Carbon Tax
and Greenhouse Gas Control: Options and Considerations for Congress, by (name redacted) and (name redacted).
6
CRS Report R40556, Market-Based Greenhouse Gas Control: Selected Proposals in the 111th Congress, by (name red
acted), (name redacted), and (name redacted).
7
In the 111th Congress, a cap-and-trade proposal—H.R. 2454 (Waxman/Markey), which also includes numerous
energy-related provisions—passed the House on June 26, 2009. See CRS Report R40643, Greenhouse Gas Legislation:
Summary and Analysis of H.R. 2454 as Passed by the House of Representatives, coordinated by (name redacted) and (name
redacted).
8
The ability to limit GHG emissions already exists under various Clean Air Act authorities that Congress has enacted,
a point underlined by the Supreme Court in an April 2007 decision, Massachusetts v. EPA. Although the current EPA
Administrator has stated a preference for controlling GHG emissions through new legislation, the agency has begun to
take actions that could lead to emission performance standards from particular sources. For more information on these
developments, see CRS Report R40585, Climate Change: Potential Regulation of Stationary Greenhouse Gas Sources
Under the Clean Air Act, by (name redacted) and (name redacted).
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Assisting Households with the Costs of a Cap-and-Trade Program
What Is a Cap-and-Trade System?
A cap-and-trade system would create an overall limit (i.e., a cap) on GHG emissions from the emission sources
covered by the program. Cap-and-trade programs can vary by the sources covered. The covered sources, also
referred to as covered entities, are likely to include major emitting sectors (e.g., power plants and carbon-intensive
industries), fuel producers/processors (e.g., coal mines or petroleum refineries), or some combination of both.
The emissions cap is partitioned into emission allowances. Typically, one emission allowance represents the authority
to emit one (metric) ton of carbon dioxide-equivalent (tCO2-e). This term of measure is used because GHGs vary by
global warming potential (GWP). GWP is an index of how much a GHG may contribute to global warming over a
period of time, typically 100 years. GWPs are used to compare gases to carbon dioxide, which has a GWP of 1. For
example, methane’s GWP is 25, and thus a ton of methane is 25 times more potent a GHG than a ton of carbon
dioxide.
In general, policymakers may decide to distribute the emission allowances to covered entities at no cost (based on,
for example, previous years’ emissions), sell the allowances through an auction, or use some combination of these
strategies. These decisions are typically a source of intense debate.
Covered entities that face relatively low emission-reduction costs would have an incentive to make reductions
beyond what is required, because these further reductions could be sold (i.e., traded) as emission credits to entities
that face higher emission-reduction costs. Likewise, entities who face higher reduction costs could purchase
allowances on the market. At the end of each established compliance period (e.g., a calendar year), covered sources
would be required to surrender emission allowances to cover the number of tons emitted. If a source did not have
enough allowances to cover its emissions, the source would be subject to penalties.
Other mechanisms, such as banking or offsets, may be included to increase the flexibility of the program.
For more information, see U.S. Environmental Protection Agency (EPA), Office of Air and Radiation, Tools of the
Trade: A Guide To Designing and Operating a Cap and Trade Program For Pollution Control (2003); CRS Report RL33799,
Climate Change: Design Approaches for a Greenhouse Gas Reduction Program, by (name redacted); CRS Report RL34502,
Emission Allowance Allocation in a Cap-and-Trade Program: Options and Considerations, by (name redacted).
This report discusses the potential impacts that a cap-and-trade program would have on U.S.
households and options for how Congress might mitigate those effects. The first section of the
report explains in greater detail why these impacts are expected and discusses the arguments for
providing financial assistance to households under a cap-and-trade program, particularly lowerincome households, to help them cope with expected cost increases. The second section examines
various issues and considerations involved in providing assistance to households. The third
section examines and compares different ways in which policymakers could alleviate some of the
costs imposed on household consumers by a GHG emission control program. The fourth section
outlines how active GHG emission reduction legislation in the 111th Congress would address
these concerns.
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Assisting Households with the Costs of a Cap-and-Trade Program
Cap-and-Trade and Household Impacts
A cap-and-trade approach to reducing GHG emissions would have economic consequences.9 By
limiting the number of GHG emissions that can be generated in a given year, a cap-and-trade
system would attach a new cost to activities that generate emissions, primarily fossil fuel
combustion.10 In general, entities subject to the emissions cap may either (1) make their own
emission reductions (e.g., install more efficient equipment or use energy sources that emit fewer
GHGs)11 and embed the additional costs into their products (e.g., electricity, gasoline, cement,
paper, steel) or (2) increase the price of their products with the expectation that the higher prices
would decrease demand from their customers, thus lowering the emissions associated with the
product’s creation or use. In either case, households are expected to ultimately bear the brunt of
the costs of the cap-and-trade program.
This section outlines the process by which these costs would filter down to households, and in
particular, why lower-income households may face disproportionately high costs as a result of
cap-and-trade legislation.
9
The level of costs would be largely dependent on the stringency (e.g., quantity and timing of required reductions),
scope (e.g., which entities are subject), and design of the cap-and-trade program (e.g., whether and to what degree
offsets could be used for compliance). See CRS Report RL33799, Climate Change: Design Approaches for a
Greenhouse Gas Reduction Program, by (name redacted).
10
The combustion of fossil fuels—coal, natural gas, oil—accounted for approximately 80% of total U.S. GHG
emissions in 2006. EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2006 (April 2008).
11
If allowed by the program, entities could also support emission reduction activities from sources outside of the cap.
These efforts could create emission credits or offsets that could be submitted for compliance purposes in lieu of
emission allowance. See CRS Report RL34436, The Role of Offsets in a Greenhouse Gas Emissions Cap-and-Trade
Program: Potential Benefits and Concerns, by (name redacted).
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Emission Allowance Value Distribution
An emissions cap would be partitioned into
emission allowances. The emission
allowances would become a valuable new
commodity, potentially accounting, in
aggregate, for tens or hundreds of billions of
dollars. The value of the allowances would be
derived from their scarcity (i.e., the quantity
limit imposed by the cap).
In designing a cap-and-trade program,
policymakers must decide how and to whom
to distribute the emission allowance value.
Although the allowance distribution strategy
would not affect the environmental integrity of
the emissions cap, the allocation of allowances
would have considerable economic
consequences, because it would represent a
wealth transfer of potentially substantial
proportions.
Regarding the method of distribution,
allowances could be (1) sold through an
auction process, (2) allocated at no cost to
covered sources, (3) provided to non-covered
sources, which would, in turn, sell them to
covered sources via the emissions trading
market, or (4) some combination of these
methods.
What Is Emission Allowance Value?
In a cap-and-trade program, a covered entity would need
to submit one emission allowance (or permit) for each
ton of GHG emissions generated in the previous year.
Because the emissions cap would limit the annual number
of allowances available for compliance, the allowances
would have value. In effect, emission allowances would
be the currency of a cap-and-trade program. As such, the
distribution of emission allowances is akin to the
distribution of money.
Throughout this report, the term emission allowance value
is used to describe either the actual revenue or potential
revenue (i.e., the value of allowances as assets)
represented by the allowances. Allowance value could be
distributed to any number of entities, including those that
are subject to emissions caps (“covered entities”) and
those that are not (“non-covered entities”).
Allowance value could be derived through the auction of
allowances—for example, the government could auction
allowances to covered entities and redistribute the
revenue for any number of purposes (including assistance
to households). Alternatively, government could give the
allowances away at no charge to either covered or noncovered entities (or both). A covered entity recipient
could use the allowances for compliance purposes, sell
the allowances in the marketplace, or bank the
allowances for future use. To realize the value of
allowances received, a non-covered entity recipient
would need to sell the allowances in the marketplace,
either through a broker or directly to a covered entity.
Policymakers could impose parameters on how noncovered entities may use this allowance value. (See the
section of this report entitled “Allowances to Energy
Distributors.”)
Arguably, the more important issue for
policymakers is not how, but to whom and for
what purpose the allowance value would be allotted. The value would be realized either as
auction proceeds or from the revenue that entities (both covered under the cap and non-covered)
could receive by selling the allowances. Policymakers could distribute the allowance value (e.g.,
no-cost allowances or auction revenues) to a wide range of parties to support various policy
objectives. These include (1) minimizing the overall program costs imposed on society;12 (2)
alleviating the costs borne by subgroups in society and economic sectors; and (3) providing
funding to support other policy objectives, which may or may not relate to climate change
mitigation. For example, the government could distribute allowances at no cost to certain
entities—states or electricity local distribution companies (discussed below)—and charge those
entities with using the emission allowance value to accomplish specified policy objectives, such
as energy efficiency improvements or technological development, or assistance to energy
consumers.
12
This could be accomplished by using auction revenues to offset reductions in other taxes, such as payroll or income
taxes. For a further discussion of this and other allocation strategies, see CRS Report RL34502, Emission Allowance
Allocation in a Cap-and-Trade Program: Options and Considerations, by (name redacted).
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Assisting Households with the Costs of a Cap-and-Trade Program
Cost Pass-Through in a GHG Control Regime
Absent the redistribution of allowance value (such as auction revenue) to help offset increased
energy costs, households would likely bear a substantial portion of the costs imposed by a capand-trade program. This would be due to the ability of covered entities (e.g., power plants,
petroleum producers/importers, large industrial facilities) to pass on the costs incurred from
complying with the program.
Illustration of Relative Distribution of Costs
Figure 1 provides an estimate of the relative distribution of costs to different groups in a cap-andtrade program. 13 The figure illustrates the relative distributions that would occur if all of the
allowances were auctioned to fossil fuel producers, without redistributing the revenues to
households or other entities (a scenario that is unrealistic because most proposals assume some
form of redistribution). Households and businesses would experience the vast majority (89%) of
the costs if allowance value is not redistributed by the government. Moreover, the household
percentage is potentially understated, because many businesses would likely pass through to
consumers some of their increased energy/electricity costs in the form of higher prices for their
goods and services. 14
Figure 1. Relative Distribution of Costs Using Emission Allowance Auction
Without Revenue Redistribution
4% 7%
35%
54%
Fossil Fuel Producers
Fossil Fuel-Fired Pow er Plants
Business/Industry
Households
Source: Prepared by CRS based on the data from the National Commission on Energy Policy, Allocating
Allowances in a Greenhouse Gas Trading System (2007).
Notes: The percentages above do not account for any offsetting income from allowance allocation. The figure
illustrates the relative cost distributions that would occur if allowances were auctioned to fossil fuel producers,
without recycling the revenues—a scenario that is unrealistic.
13
This figure is based on a National Commission on Energy Policy (NCEP) proposal that would lead to a relatively
modest reduction in GHG emissions compared to those required under current proposals in the 111th Congress. Thus,
this figure is illustrative and only useful for comparing relative differences.
14
National Commission on Energy Policy, Allocating Allowances in a Greenhouse Gas Trading System (2007).
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“Free” Allowances to Covered Entities and Cost Pass-Through
Although it may seem counterintuitive, covered entities are expected to raise the price of their
products, even if the entities receive allowances at no cost. Economists point out that “free
allowances”15 have value, and when covered entities submit an allowance to the government for
compliance purposes, the entities forgo the opportunity (known as an “opportunity cost” in
economics parlance) to sell the unused allowance in the emissions trading market. 16 Therefore,
economic principles predict that these entities (to the extent that they are able)17 would pass along
their opportunity costs18 or purchase costs, respectively, in the same manner as an actual expense,
such as installing more efficient technology or switching to more expensive (but less carbonintensive) fuels. Thus, covered sources would receive both the financial benefit of the allowances
and the gains associated with higher prices.19 These benefits are often described as “windfall
profits.”20 Covered sources have demonstrated this behavior in two cap-and-trade programs, in
which the vast majority of allowances was provided at no cost: the European Union’s Emission
Trading System (EU-ETS) and the U.S. sulfur dioxide emissions trading program.21
Potentially Regressive Effects of Cap-and-Trade
Without some form of allowance value redistribution, lower-income households would likely bear
a disproportionate share of the costs related to an emissions cap, because those households
generally spend a higher percentage of their income on energy-related goods and services than do
higher-income households. In public policy terms, this outcome is described as regressive. This
section assesses the regressive nature of these costs on households and discusses other policies in
the United States that ameliorate costs faced by low-income households.
15
Like there is no free lunch, free allowances are not really free.
See National Commission on Energy Policy, Allocating Allowances in a Greenhouse Gas Trading System (2007);
Congressional Budget Office, Trade-Offs in Allocating Allowances for CO2 Emissions (2007), Economic and Budget
Issue Brief; Dallas Burtraw, Cap, Auction, and Trade: Auctions Revenue Recycling under Carbon Cap and Trade
(2008), Testimony Prepared for the House Select Committee on Energy Independence and Global Warming.
17
Some industries may have more flexibility to pass through costs than other industries. For example, certain U.S.
industries may be more vulnerable to foreign competition, especially if their competitors are located in nations without
GHG emissions caps. For these industries, increasing the price of their materials (to reflect the cost of emissions
abatement) may entail a comparative disadvantage. See CRS Report R40100, “Carbon Leakage” and Trade: Issues
and Approaches, by (name redacted) and (name redacted).
18
See e.g., National Commission on Energy Policy, Allocating Allowances in a Greenhouse Gas Trading System
(2007); Congressional Budget Office, Trade-Offs in Allocating Allowances for CO2 Emissions (2007), Economic and
Budget Issue Brief; Dallas Burtraw, Cap, Auction, and Trade: Auctions Revenue Recycling under Carbon Cap and
Trade (2008), Testimony Prepared for the House Select Committee on Energy Independence and Global Warming.
19
However, higher prices could reduce consumer demand and potentially lower profits.
20
U.S. Congress, Senate Committee on Energy and Natural Resources, Design Elements of a Mandatory Market-Based
Greenhouse Gas Regulatory System, Chairman and Ranking Member Statement: Climate Change Conference (2006),
109th Congress.
21
Congressional Budget Office, Trade-Offs in Allocating Allowances for CO2 Emissions (2007), Economic and Budget
Issue Brief.
16
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Price Burdens Faced by Low-Income Households
Lower-income households may be more economically vulnerable to the potential price increases
that could come with a GHG control program. On average, lower-income households already pay
a larger share of their income toward the costs of their residential energy and for gasoline. These
households are also less likely to have the financial resources to improve the energy efficiency of
their dwelling units or to purchase energy efficient appliances or cars, which could help reduce
high energy costs. And while it is possible to reduce the quantity or quality of consumption in
order to reduce expenses, reducing reliance on residential energy and gasoline beyond a certain
point may be unrealistic.
•
22
Residential Energy Burdens—The amount of funds spent by a household on
residential energy relative to its income is sometimes referred to as an “energy
burden.” Data collected through the Department of Energy’s Residential Energy
Consumption Survey (RECS) show the differences in energy burdens faced by
low-income households—defined as those who are eligible for the federal Low
Income Home Energy Assistance Program (LIHEAP) but do not necessarily
receive benefits22—compared to non low-income households. In 2006, lowincome households had a median individual energy burden of 9.5%,23 meaning
that half of low-income households spent more than 9.5% of their income on
residential energy and half spent less than 9.5%.24 This compared to 3.1% for
non-low income households. The poorest households—those that actually receive
LIHEAP benefits—had a median individual energy burden of 15.3%. 25 (See
Figure 2.) These effects varied by region, with households in the Northeast of all
income levels facing higher energy burdens than those in the Midwest, South, or
West.
That is, those with incomes at or below 150% of poverty or 60% of state median income, whichever is higher.
23
Median individual energy burden represents the energy burden of the household in the middle of a range of
households. For example, if five households have energy burdens of 0.8%, 1.5%, 2.5%, 5%, and 10%, the median
energy burden is 2.5%. Unlike the mean individual burden, the median does not capture extremes in the range.
24
The RECS also collects data on mean individual energy burden and mean group energy burden.
25
The energy burden for LIHEAP-recipient households may be higher than that for LIHEAP eligible households
because the LIHEAP statute requires that states provide the most assistance to those families with the lowest incomes
and highest energy needs in relation to their income. 42 U.S.C. § 8624(b)(5). As a result, LIHEAP households may be
more needy than the low-income households that meet eligibility requirements for the program but do not necessarily
receive benefits.
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Assisting Households with the Costs of a Cap-and-Trade Program
Figure 2. 2006 Median Individual Energy Burden
Households by Income and Region of the Country
20%
18.3%
18%
15.3%
Percent of Income
16%
14.6%
13.6%
14%
12%
10%
11.0%
13.0%
10.6%
10.1%
9.5%
8%
6%
4%
6.1%
4.1%
3.1%
5.0%
3.7%
4.3%
4.3%
3.3%
3.1%
Midwest
South
3.1%
2.4%
2%
0%
United States
Northeast
All Households
Low-Income Households
West
Non-Low Income Households
LIHEAP Recipient Households
Source: FY2006 LIHEAP Home Energy Notebook, p. 54, Table A-2c.
Note: Low-income households are those with incomes at or below 150% of poverty or 60% of state median
income, whichever is higher. LIHEAP-recipient households typically have lower incomes and higher energy
burdens than low-income households as a whole.
•
Consumer Spending on Utilities—Another measure of the cost burdens faced
by low-income households comes from the Consumer Expenditure Survey
(CES), which measures consumer out-of-pocket spending on a variety of goods
and services, including utilities and gasoline.26 According to data from 2007,
spending on utilities27 (as a percentage of all expenditures) declined from lower
to higher income groups with few exceptions. 28 For families with incomes
between $5,000 and $10,000 per month, spending on utilities represented more
than 10% of their total expenditures. (See Table 1.) As income increased, the
share of spending on utilities decreased incrementally for each income group
above $20,000 to less than 5% for those with incomes at or above $150,000.
•
Consumer Spending on Gasoline—The CES also surveys respondents about
their spending on gasoline and motor oil. Families with incomes between
$30,000 and $40,000 had the greatest share of expenditures on gasoline—5.75%.
26
The CES does not measure spending as a percentage of income as the RECS does, but measures spending on
different items as a percentage of total spending. Note that total spending as reported by those participating in the CES
is not always consistent with income, with lower-income groups (those with incomes below $20,000) in particular
reporting expenditures greater than annual income on average. According to the Bureau of Labor Statistics, which
conducts the CES, this could be due to reliance on savings, borrowing, or retirement income, or due to the
underreporting of income.
27
Under the CES, utilities include natural gas, electricity, fuel oil, telephone service, water, and other public services.
28
Spending for families with incomes below $15,000 grew incrementally from 8.81% for those with incomes below
$5,000 to 10.59% for those with incomes between $5,000 and $10,000, and to 10.82% for those with incomes between
$10,000 and $15,000.
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From there, the share of spending on gasoline by income group gradually
declined, dipping below 5% for families with income above $80,000. The share
of spending for lower-income families on gasoline—those with income below
$20,000—was smaller than those with middle incomes, ranging between 4.74%
for those with incomes below $5,000 to 5.47% for those with incomes between
$15,000 and $20,000.
Table 1. Consumer Spending on Utilities and Gasoline, 2007
Income
Percentage of Spending
Toward Utilities
Percentage of Spending
Toward Gasoline
Less than $5,000
8.81%
4.74%
$5,000-$9,999
10.59%
5.33%
$10,000-$14,999
10.82%
4.78%
$15,000-$19,999
10.13%
5.47%
$20,000-$29,999
9.25%
5.71%
$30,000-$39,999
8.84%
5.75%
$40,000-$49,999
7.99%
5.68%
$50,000-$69,999
7.33%
5.53%
$70,000-$79,999
7.12%
5.24%
$80,000-$99,999
6.29%
4.79%
$100,000-$119,999
5.98%
4.62%
$120,000-$149,999
5.53%
4.11%
$150,000 and more
4.59%
3.05%
Source: U.S. Department of Labor, Bureau of Labor Statistics, 2007 Consumer Expenditure Survey.
Estimates of Regressive Impacts from Cap-and-Trade Models
In recent years, multiple economic analyses have provided estimates of impacts that a GHG
emission control program (cap-and-trade or carbon tax) would impose on households of varying
income levels. 29 As might be expected based on baseline energy spending per income group
(discussed earlier), economic models have indicated that a GHG emission control program—
without emission allowance value (or tax revenue) redistribution to households—would yield
regressive effects. For example, a 2009 study from Resources for the Future found that—as a
percentage of household income—the lowest income group would bear a cost almost five times
the cost of the highest income group (Table 2).
29
See e.g., Gilbert Metcalf, A Proposal for a U.S. Carbon Tax Swap: An Equitable Tax Reform to Address Global
Climate Change (2007), The Hamilton Project, Brookings Institution; Gilbert Metcalf et al., Analysis of U.S.
Greenhouse Gas Tax Proposals (2008), MIT Joint Program on the Science and Policy of Climate Change, Report No.
160; CBO, Who Gains and Who Pays Under Carbon-Allowance Trading? The Distributional Effects of Alternative
Policy Designs (2000); CBO, Trade-Offs in Allocating Allowances for CO2 Emissions (2007), Economic and Budget
Issue Brief; CBO, The Estimated Costs to Households From the Cap-and-Trade Provisions of H.R. 2454 (2009).
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Table 2. Model Estimates of a Cap-and-Trade Program’s Impacts on Households as a
Percentage of Household Income
Before Redistribution of Emission Allowance Value (Gross Impacts)
Income Decile
Costs to Households as a
Percentage of Their Income
1
4.4%
2
2.8%
3
2.3%
4
2.1%
5
1.8%
6
1.6%
7
1.5%
8
1.4%
9
1.2%
10
0.9%
Average
1.4%
Source: Prepared by CRS with data from Dallas Burtraw et al., The Incidence of U.S. Climate Policy: Alternative Uses
of Revenues from a Cap-and-Trade Auction (June 2009), Resources for the Future Discussion Paper.
Notes: The model assumed a CO2 emission control program was enacted in 2009; the above impacts
correspond to 2015 with an assumed emission allowance price of $20.91/metric ton of CO2 (in 2006 dollars).
The impacts illustrate relative differences between income groups that would occur if a price were imposed on
CO2 emissions.
Arguments for Alleviating Regressive Impacts
Given the disproportionate impacts that a cap-and-trade system could have on lower-income
households, some have argued that allowance value should be used to alleviate the burden those
households would likely face. There are a number of policy rationales behind such an
intervention. (Note that there are also rationales against alleviating regressive effects; for
example, see the section of this report entitled “Potential Concerns Regarding Direct Assistance
Options.”) An economic rationale behind distributing income and in-kind assistance to lowerincome individuals is based on the concept of marginal utility of income and the decreasing
satisfaction that consumers receive from each additional dollar of income they gain. The theory is
that the value of a dollar is greater for a person who has fewer of them. Under economic theory,
then, if income is redistributed from a higher-income person to a lower-income person, societal
well being (or utility) is maximized.
Economic theory presumably does not fully explain why society adopts policies to redistribute
benefits to lower-income groups, however. Decisions to assist lower-income individuals and
families may be driven by societal values—policymakers may consider it important to provide
benefits so that some people will have a standard of living that they would not otherwise.
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Precedents for Alleviating Regressive Impacts
The federal government targets assistance to lower-income individuals and families in numerous
ways. The federal income tax system is progressive, with lower-income families paying lower
marginal tax rates and, in some cases, paying no taxes at all or receiving refundable credits. The
social welfare system in the United States, including such programs as Temporary Assistance for
Needy Families, the Supplemental Nutrition Assistance Program (SNAP, formerly known as Food
Stamps), and Medicaid, subsidizes families below certain income levels. Even social insurance
programs such as Social Security, Unemployment Insurance, and Medicare are redistributive to
some degree.
While Congress could choose to allow households to realize the full consequences of increased
energy prices rather than to mitigate those effects in some way, there is precedent for mitigating
adverse distributional consequences that occur as the result of government policies. In trade
policy, for example, those workers who lose their jobs for trade-related reasons may receive a
type of unemployment benefit called Trade Adjustment Assistance (TAA) for Workers;30 there is
also TAA for farmers.31
In addition, the U.S. government has a history of helping low-income families with some of those
very costs that are projected to increase as the result of a GHG emission control program—in
particular, the costs of residential energy. Since the energy spikes of the 1970s, the Low Income
Home Energy Assistance Program (LIHEAP) and Weatherization Assistance Program (WAP)
have helped families weatherize (e.g., insulate or update heating and cooling systems) and pay
home energy bills. And while no program exists to help consumers buy gasoline, legislative
proposals have been made in previous Congresses to assist with the purchase of gasoline. 32
Further, states participating in the Regional Greenhouse Gas Initiative (a cap-and-trade program
comprised of 10 northeast and mid-Atlantic states) are targeting some revenues to assist lowincome families.33 These existing programs help ease the cost burden faced by low-income
families.
30
For more information, see CRS Report RS22718, Trade Adjustment Assistance for Workers (TAA) and
Reemployment Trade Adjustment Assistance (RTAA), by (name redacted).
31
For more information, see CRS Report R40206, Trade Adjustment Assistance for Farmers, by (name redacted).
32
See, for example, H.R. 3712, the Gas Stamps Act of 2005, and the Low-Income Gasoline Assistance Program Act in
the 109th (H.R. 4010) and 110th (S. 2968) Congresses.
33
Environment Northeast tracks allowance value distribution by RGGI state, at http://www.env-ne.org/public/resources/
pdf/ENE_Auction_Tracker_040209.pdf.
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Direct Assistance to Households: Considerations
If Congress enacts a cap-and-trade program and determines to use some portion of emission
allowance value to directly assist households, policymakers would face several questions when
seeking to implement this objective. A primary consideration is which households or persons
should receive allowance value: should value be distributed evenly to all households, or should
particular household groups receive a higher proportion? Moreover, should policymakers seek to
account for different costs that households in different regions may experience? In addition to
these issues, this section examines potential concerns and unintended consequences that may
occur by providing direct assistance to households.
Indirect Assistance to Households
In general, this report discusses policy options for providing direct (or nearly direct)34 assistance to households
through the distribution of emission allowance value. However, Congress could distribute allowance value to other
entities for other purposes, which may ultimately provide benefits to households. Such approaches might be
described as indirect assistance to households.
Energy Efficiency. Policymakers may choose to fund energy efficiency projects, which may lead to lower overall
costs of energy use. Assuming cost savings come to fruition, a portion of them would likely reach households.
Low-carbon Technology Development. In a similar vein, Congress may distribute allowance value to stimulate
the development and market penetration of low-carbon technologies. If new, low-carbon technologies are
discovered, or if existing technologies (e.g., carbon capture and sequestration) are made more economical,35 the
overall costs of a GHG control program may be reduced and households would likely benefit.
Indirect Income Supplements. If Congress were to allocate allowances at no cost to business and industry (and
with no conditions on their use), the financial benefit from the allowances would eventually accrue to shareholders in
the companies.36 Therefore, households that own stock in certain companies or those who invest in retirement plans
may benefit by increased share prices. Households receiving Social Security benefits may also benefit indirectly.37 Each
year the Social Security Administration adjusts benefits based on cost of living as measured by the consumer price
index. If energy prices and the costs of energy-intensive goods and services were to increase, Social Security benefits
would reflect these changes.
Climate Change Adaptation. Some level of global warming (and associated effects) will occur regardless of
emission reduction efforts taken today because previous and current GHG emissions will have long term climate
impacts. Therefore, some contend that investment (e.g., allowance value) should focus on preparing communities to
adapt to the effects of a changing climate. Households, particularly in the most impacted regions, would benefit from
such investments.
34
Emission allowance allocation to electricity local distribution companies (discussed later in this report) for the
exclusive benefit of electricity consumers would fall into this category.
35
See CRS Report RL33801, Carbon Capture and Sequestration (CCS), by (name redacted).
36
Written Statement of Douglas W. Elmendorf, Director, Congressional Budget Office, Before the Senate Finance
Committee, May 7, 2009, pp. 16-17, http://www.cbo.gov/ftpdocs/101xx/doc10115/05-07Cap_and_Trade_Testimony.pdf.
37
Ibid., p. 24.
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Equal Assistance to All Households
One option for policymakers is to distribute an
equal portion of allowance value to all
households across the country without regard
to income or other potential differences (e.g.,
regional energy price increases due to carbon
constraint, discussed below). Some have
referred to this method as a “lump-sum
distribution” or a “cap and dividend”
approach.
This approach could appeal to policymakers
for a variety of reasons. This option is
relatively easy to explain and would likely be
easier to implement compared to alternatives
that must consider income or other differences
among households.
What Is a Household?
An initial question in designing a system to redistribute
cap-and-trade revenue would be to determine the
recipient to whom benefits might be distributed. In
general, when economists have discussed the possibility
of implementing a cap-and-trade program, the
assumption has been made that funds would be allocated
to household units.38 However, funds could also be
allocated to family units or to individuals.39 While the
terms “household” and “family” are sometimes used
interchangeably, they are defined by the Census Bureau
and have different meanings. A household is broader than
a family and encompasses any living arrangements that
might occur in a housing unit, including “a single family,
one person living alone, two or more families living
together, or any other group of related or unrelated
people who share living quarters.”40 A family is defined as
a householder and those related to him or her by birth,
marriage, or adoption.41
In addition, this approach would address the
regressive impacts of a cap-and-trade program to some degree. Economic studies42 have found
that distributing lump sum rebates to all households would yield progressive results.43 However,
these economic models assumed that the majority of allowance value (through auction proceeds)
would go to households. If Congress were to distribute value for other uses, such as investments
in technology or assistance to workers in affected industries, there would be fewer dollars with
which to compensate households and the distributional effects (i.e., progressivity) would be less
clear. If that were the case, providing more substantial rebates to lower-income households may
be necessary to ensure progressivity.
A question that may arise under this approach is whether Congress should consider different
household sizes when allotting allowance value. Equal payments, if not scaled to household size,
may benefit some consumers disproportionately, with payments not necessarily commensurate
38
See, for example, Terry Dinan, Trade-Offs in Allocating Allowances for CO2 Emissions, Congressional Budget
Office, April 25, 2007, http://www.cbo.gov/ftpdocs/89xx/doc8946/04-25-Cap_Trade.pdf (hereinafter Trade-Offs in
Allocating Allowances for CO2 Emissions) and Dallas Burtraw, Rich Sweeney, and Margaret Walls, The Incidence of
U.S. Climate Policy: Where You Stand Depends on Where You Sit, Resources for the Future, September 2008,
http://www.rff.org/RFF/Documents/RFF-DP-08-28.pdf.
39
For example, the Cap and Dividend Act of 2009 (H.R. 1862) would provide a consumer dividend for any individual
with a valid Social Security number who is lawfully present in the United States.
40
U.S. Census Bureau, Summary Social, Economic, and Housing Characteristics, 2000 Census of Population and
Housing, June 2003, p. B-14, http://www.census.gov/population/cen2000/phc-2-a-B.pdf.
41
Ibid., p. B-16.
42
See e.g., CBO, Trade-Offs in Allocating Allowances for CO2 Emissions, p. 6; Dallas Burtraw, Rich Sweeney, and
Margaret Walls, The Incidence of U.S. Climate Policy: Where You Stand Depends on Where You Sit, Resources for the
Future, September 2008.
43
The term “progressive” is generally used to refer to tax systems where tax rates grow as income increases. In the case
of a GHG emission reduction program, it refers to the burden of increased prices accruing to those with higher
incomes.
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with increased energy costs faced by a consumer unit.44 However, distributing assistance by
household size may present more implementation challenges.
Targeted Assistance to Specific Income Groups
Another approach would be to target assistance to households whose incomes make them more
economically vulnerable to the increased costs of energy and the goods and services produced
with regulated energy sources. Policymakers could choose to target funds to “low-income,”
“moderate-income,” and/or “middle-income” individuals or groups, depending on their priorities
or perceptions of need. As discussed earlier, the argument for providing more targeted assistance,
in terms of income levels, relates to the disproportionate impacts that lower income level
households would be expected to bear under a cap-and-trade program. However, a targeted
approach based on income would likely require further debate among policymakers. For example,
how should the emission allowance value be divided among different income groups and which
groups should be targeted?
The terms “low-income household” or “low-income family” are sometimes used in the laws
governing federal programs to describe those persons who qualify for a given benefit, but the
meaning may vary depending on the program at issue. Some programs may use the federal
poverty guidelines to determine benefits.45 For example, families qualify for SNAP if their
incomes are at or below 130% of poverty. 46 Other programs may use median income—the middle
of the income range in a given area such as a state, a county, or a metropolitan area.47 For
example, many HUD rental assistance programs consider low-income families to be those whose
income is at or below 80% of area median income. 48
Unlike the term “low-income,” the terms “moderate-income” and “middle-income” are rarely
used to describe program eligibility in federal law. Some HUD multifamily housing programs
target moderate-income families, defined as those with incomes between 80% and 95% of area
median income, 49 while some homeownership programs through HUD and the Department of
Agriculture use 100% of area median income and 115% of area median income respectively. 50
44
For example, payments based on the number of individuals in a household may not account for such factors as the
economies of scale present in larger households. Conversely, equal payments to all households may not account for
large family size. For a discussion of how federal benefits are scaled based on family size, see Measuring Poverty: A
New Approach, ed. Constance F. Citro & Robert T. Michaels (Washington, DC: National Academy Press, 1995), p.
159.
45
The Department of Health and Human Services (HHS) calculates and releases the poverty guidelines, which are
updated each year for changes in consumer prices. The poverty guidelines are the same for all states in the country
except Alaska and Hawaii. In 2009, the annual poverty rate for a family of four is $22,050 in the continental United
States, $27,570 in Alaska, and $25,360 in Hawaii. For the 2009 poverty guidelines, see U.S. Department of Health and
Human Services, “Annual Update of the HHS Poverty Guidelines,” 74 Federal Register 4199-4201, January 23, 2009.
46
7 U.S.C. § 2014(c).
47
Median income data are collected as part of the American Community Survey. Unlike the poverty rate, programs that
use median income take into account the relative wealth of an area in determining eligibility. For example, in 2007, the
state of Maryland had the highest median income for a family of four at $99,884, while the lowest state median family
income was Mississippi at $44,752.
48
42 U.S.C. § 1437a(b)(2).
49
U.S. Department of Housing and Urban Development, Office of Policy Development and Research, FY2009 HUD
Income Limits Briefing Materials, March 11, 2009, p. 13, http://www.huduser.org/datasets/il/il09/
IncomeLimitsBriefingMaterial_FY09.pdf.
50
See Fannie Mae and Freddie Mac low- and moderate-income housing goals for homeownership, 24 C.F.R. § 81.17,
(continued...)
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The term “middle income” is not defined in federal law, and may mean different things depending
on how one chooses to use it. 51 For example, the term is sometimes used to refer to those
households in the middle income quintile as measured by the Census. According to the 2007
American Community Survey, household incomes in the middle quintile ranged from $40,254 to
$62,601.52
Targeted Assistance Based on Geographical Differences
Many expect geography to play a key role in determining household impacts, largely due to
different energy uses across regions. Energy sources have varying levels of carbon content: coal
has almost twice the carbon content (per unit of energy) of natural gas; the carbon content of
electricity from nuclear, hydropower, and renewable energy sources is effectively zero. 53 Thus,
households in areas that rely on more carbon-intensive energy sources are generally expected to
face disproportionate impacts from a cap-and-trade program (which establishes a price based on
carbon content), compared to households that rely on less-carbon intensive energy. Many have
argued that assistance to households should reflect these regional differences. Under this
reasoning, instead of providing lump-sum household payments, policymakers may consider
distributing allowance value in some proportion to the different cost increases that are projected
across different regions. Although such a distribution strategy has received considerable attention,
implementing such an approach would pose substantial challenges. Moreover, the underlying
assumption upon which the strategy is based may be questioned to some degree. These issues are
discussed below.
Evidence of Different Costs Across Regions
Two recent economic studies54 provide estimates of cost impacts to households by income group
and geographic region.55 Table 3 includes the results from one of these studies (Resources for the
Future), which examined the impacts of an emission allowance price of $20.91 (per metric ton of
CO2)56 on household spending patterns and income levels (in 2006 dollars). It is critical to note
that these percentages do not account for any offsetting income from emission allowance (or
auction revenue) distribution. The percentages illustrate the relative gross impacts to households
(...continued)
and the Rural Housing Service loan program, 42 U.S.C. § 1472(h).
51
For more information, see CRS Report RS22627, Who Are the “Middle Class”?, by (name redacted).
52
2007 American Community Survey One-Year Estimates, Table B19080, “Household Income Quintile Upper
Limits.”
53
Many consider carbon dioxide emissions from biomass sources as practically neutral, because biomass sources take
in carbon dioxide during their growing cycle and release it when burned. See CRS Report RL34059, The Carbon
Cycle: Implications for Climate Change and Congress, by (name redacted).
54
Dallas Burtraw, et al., The Incidence of U.S. Climate Policy: Alternative Uses of the Revenue from a Cap-and-Trade
Program (June 2009), Resources for the Future Discussion Paper 09-17-Rev; and Kevin Hassett, et al., The Incidence
of a U.S. Carbon Tax: A Lifetime and Regional Analysis (January 2008), Working Paper 14023, National Bureau of
Economic Research.
55
CBO assessed these two studies as part of a response regarding regional impacts to Senator Inhofe: CBO, Two
Recent Studies of Regional Differences in the Effects of Policies That Would Price Carbon Dioxide Emissions (July 9,
2009).
56
The model in this study only included CO2 emissions.
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under a cap-and-trade program without redistribution of allowance value—a scenario that is
unrealistic, as was noted earlier.
Table 3 shows that the average household costs of a hypothetical cap-and-trade program as a
percentage of income ranged from 1.3% in California to 1.6% in the Ohio Valley—a 23%
difference. The regional difference is more pronounced for lower-income households: the lowestincome household in California would (on average) experience costs of 4.0% of its income; the
corresponding household in the Ohio Valley region would bear costs of 5.5% of its income—a
38% difference.
The perception of these percentage differences may depend on the magnitude of the cost impacts.
The RFF study estimated, for example, that the average lowest-income household in the Ohio
Valley region would bear $100 more in annual costs than a corresponding household in
California. Considering the potential implementation challenges (discussed below) involved, a
question for policymakers is whether this disparity is worth addressing through an emission
allowance distribution strategy that accounts for regional differences.
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Table 3. Estimates of a Hypothetical Cap-and-Trade Program’s Average Costs Per Household as a Percentage of Income
By Region and Income Decile Before Redistribution of Emission Allowance Value (Gross Impacts)
Income Deciles (1 = Lowest Income Decile; 10 = Highest)
U.S. Region
1
2
3
4
5
6
7
8
9
10
Average
Ohio Valley
5.5%
3.2%
2.6%
2.3%
2.0%
1.8%
1.7%
1.5%
1.3%
1.0%
1.6%
Texas
5.0%
3.0%
2.5%
2.2%
2.0%
1.8%
1.6%
1.4%
1.4%
1.0%
1.5%
Mountains
5.3%
3.1%
2.4%
2.1%
1.8%
1.7%
1.6%
1.4%
1.3%
0.9%
1.5%
Plains
4.7%
2.6%
2.3%
1.9%
1.9%
1.7%
1.6%
1.4%
1.2%
1.1%
1.5%
Florida
4.7%
2.8%
2.3%
2.0%
1.7%
1.6%
1.4%
1.3%
1.2%
0.8%
1.4%
Southeast
4.8%
3.0%
2.4%
2.0%
1.8%
1.6%
1.5%
1.3%
1.2%
0.8%
1.4%
Northeast
5.4%
3.3%
2.4%
2.1%
1.8%
1.5%
1.5%
1.4%
1.2%
0.9%
1.3%
Mid-Atlantic
5.2%
2.9%
2.4%
2.1%
1.8%
1.6%
1.5%
1.3%
1.1%
0.9%
1.3%
Northwest
4.5%
2.6%
2.1%
1.8%
1.8%
1.5%
1.4%
1.3%
1.1%
0.9%
1.3%
New York
4.9%
2.9%
2.0%
2.0%
1.9%
1.6%
1.5%
1.3%
1.2%
0.8%
1.3%
California
4.0%
2.6%
2.1%
2.0%
1.6%
1.5%
1.4%
1.3%
1.2%
0.9%
1.3%
National
Average
4.4%
2.8%
2.3%
2.1%
1.8%
1.6%
1.5%
1.4%
1.2%
0.9%
1.4%
Source: Prepared by CRS, based on data from Dallas Burtraw, et al., The Incidence of U.S. Climate Policy: Alternative Uses of the Revenue from a Cap-and-Trade Program (June
2009), Resources for the Future (RFF) Discussion Paper 09-17-Rev.
Notes: The model assumed a CO2 emission control program was enacted in 2009; the above impacts correspond to 2015 with an assumed emission allowance price of
$20.91/metric ton of CO2 (in 2006 dollars). The impacts illustrate relative differences between income groups that would occur if a price were imposed on CO2 emissions.
These percentages do not account for any offsetting income from emission allowance (or auction revenue) distribution. The percentages illustrate the relative gross impacts
to households under a cap-and-trade program without redistribution of allowance value—a scenario that is unrealistic.
The RFF study’s multi-state regions include the following states: (1) Ohio Valley: Illinois, Indiana, Kentucky, Michigan, Missouri, Ohio, West Virginia, Wisconsin; (2)
Mountains: Arizona, Colorado, Nevada; (3) Plains: Kansas, Minnesota, Nebraska, Oklahoma, South Dakota; (4) Southeast: Alabama, Arkansas, District of Columbia, Georgia,
Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia; (5) Northeast: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island; (6) MidAtlantic: Delaware, Maryland, New Jersey, Pennsylvania; and (7) Northwest: Idaho, Montana, Oregon, Utah, Washington.
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Implementation Challenges
In a cap-and-trade program, the electricity sector, which accounts for 34% of total U.S. GHG
emissions,57 would contribute a large portion of the emissions cap-related costs imposed on
households. The more carbon intensive the electricity, the more allowances (and expense) would
be required to produce it. Thus, if policymakers are concerned about cost disparities across
different regions of the country, policymakers would need to account for the different carbon
intensities of electricity (i.e., fuel mix used to generate electricity). The carbon intensity of
electricity varies based on the energy source used to generate the electricity—for example,
electricity produced with coal has a higher carbon content than that produced with natural gas,
and so on. As the geographic area in question becomes more refined—moving from a region to a
state, or a state to a local distribution company (LDC)58—a carbon intensity of electricity
determination becomes more difficult. 59
The difficulty relates to data availability. Data exist to determine the carbon intensity of electricity
at the level of the individual power plant.60 However, in many cases, an electricity LDC does not
have a complete picture of the energy sources used to produce its power supply. Depending on the
distribution utility’s circumstances, it may have almost no relevant information.61 Neither state
governments nor the federal government collect data needed to accurately and routinely tie
electricity deliveries to the generating source. Because of the complexity of power market
transactions, in which a block of power can change hands several times before final delivery and
the mix of fuels is constantly changing over time, it is unlikely that such a data collection process
could be designed and implemented. H.R. 2454 would require such a data collection process.62
Some groups have suggested using existing regional estimates in lieu of LDC-specific data.63 For
example, EPA has developed output emission rates for subregions in the agency’s Emissions and
Generation Resource Integrated Database (eGRID). 64 However, these estimates are not the same
as carbon content of electricity consumed, because electricity may be generated in one region and
exported for consumption to another region. Therefore, if policymakers use data that measures
57
EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007 (April 2009).
Local distribution companies are the entities that provide electricity to residential and commercial consumers.
59
To put this challenge in the context of recent legislation, H.R. 2454 (Waxman-Markey) would distribute emission
allowances to electricity local distribution companies (LDC), partly based on the carbon content of electricity delivered
by the LDC.
60
The Energy Information Administration (EIA) collects data by fuel type for all generating units with a capacity of
one megawatt or greater. Power plant operators are legally obligated to timely and accurately file the data with EIA.
61
This is particularly the case for so-called deregulated states. In the United States, the price consumers pay for
electricity may be determined by a state regulatory body—often described as cost-of-service regulation—or the price
may be subject to market forces—often described as deregulated or competitive. In general, the regulatory structure
varies by the type of facility and/or the state in which the electricity is generated. In 2007, the more traditional, priceregulated electric utilities generated approximately 60% of the total net electricity generated in the United States
(calculated by CRS with data from the Energy Information Administration’s 906/920 database, available at
http://www.eia.doe.gov/cneaf/electricity/page/eia906_920.html.)
62
The text of H.R. 2454 suggests that the drafters recognize this challenge, stating “where it is not practical to
determine the precise fuel mix for the electricity delivered at retail by an individual electricity local distribution
company, the Administrator may use the best available data, including average data on a regional basis ... ” (Sec.
783(b)(2)(C)(iii)(II)).
63
H.R. 2454 has such a provision (Section 783(b)(2)(C)(iii)(II).
64
EPA, Emissions & Generation Resource Integrated Database, at http://www.epa.gov/cleanenergy.
58
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carbon content of electricity generated to distribute allowance value, regions that are net exporters
of high-carbon electricity may be overcompensated at the expense of regions that are net
importers of high-carbon electricity. The customers in net importing regions would be the group
that would bear the emission cap carbon price.
Moreover, distributing allowance value to LDCs based on regional data may overcompensate
some LDCs at the expense of others. The regions that would likely be considered comprise
multiple states in many cases. Within a particular region (or state), the LDCs’ carbon intensities
of electricity likely span a wide range. For example, if one LDC were to purchase power solely
from a nuclear power plant, while an LDC in a neighboring area purchased solely from a coalfired generator, the two LDCs’ carbon intensities would vary dramatically.
Potential Concerns Regarding Direct Assistance Options
Some approaches to providing assistance to households may raise concerns and perhaps yield
unintended consequences—specifically, the failure to encourage energy efficiency improvements
among households. A primary concern shared by some observers regards the impact of certain
assistance mechanisms on the carbon price signal. By design, a GHG emissions control program,
such as cap-and-trade, places a price on carbon. This price is expected to affect behavior—for
example by encouraging or promoting activities that are less carbon-intensive. The carbon price
will be reflected in higher energy prices (electricity and gasoline) as well as other materials that
are produced through energy use. As stated by the Director of the Congressional Budget Office
(CBO):
The price increases would be essential to the success of a cap-and-trade program because
they would be the most important mechanism through which businesses and households
would be encouraged to make economically motivated changes in investment and
consumption that reduced CO2 emissions.65
If the price signal is channeled to economic sectors that have higher marginal costs of abatement,
the overall cost of the cap-and-trade program would increase. For example, the Director of the
CBO recently described the effects of using emission allowance value to hold electricity bills
steady:
Muting the increase in electricity prices would increase the overall cost of the policy because
it would reduce households’ incentives to undertake measures to reduce their electricity
consumption, such as choosing more efficient appliances or turning down their thermostats.66
Demonstrating this concept, a 2008 study from Resources for the Future modeled emission
allowance prices under different emission allocation strategies. Compared to a 100% auction
approach, a free distribution of allowances to LDCs based on electricity emissions (for the
purpose of alleviating electricity price increases on consumers) would raise the allowance price
by approximately 13%,67 thus increasing the overall cost of the program.
65
Testimony by Douglas W. Elmendorf (Director of the Congressional Budget Office) before the Senate Committee on
Finance (May 7, 2009).
66
Ibid.
67
Anthony Paul et al., Compensation for Electricity Consumers under a U.S. CO2 Emissions Cap (July2008),
Resources for the Future Discussion Paper.
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Moreover, if the price signal is dampened in one sector of the economy or for a particular
subgroup of society, the signal will move to other sectors or other groups. During the same
testimony, the CBO Director described this possibility:
As a result [of muting the increase in electricity prices], the burden of meeting the cap would
fall more heavily on other sectors, and that additional burden would be reflected in higher
prices for other goods and services that households purchase. (For example, the price of
gasoline would probably increase more than would otherwise be the case.)68
Mechanisms for Returning Funds to Households
Policymakers have a variety of options available for distributing allowance value to households.69
Proposed delivery mechanisms in both the 110th and 111th Congress have included:70
•
distributing equal dividends to all households,71 or to all individuals;72
•
providing energy tax credits for low- and/or middle-income households with
earned income or qualifying retirement income, 73 or expanding the Earned
Income Tax Credit;74
•
reducing Social Security payroll taxes;75
•
distributing allowances to electricity and natural gas local distribution companies
(LDCs) to be used to “mitigate economic impacts on low- and middle-income
consumers,”76 or to assist all consumers;77
•
allocating auction proceeds to the Low Income Home Energy Assistance
Program and the Weatherization Assistance Program; 78 and
•
creating rebates for low-income households.79
68
Testimony by Douglas W. Elmendorf (Director of the Congressional Budget Office) before the Senate Committee on
Finance (May 7, 2009).
69
This section of the report uses the term “household” generally. Funds could be distributed to individuals, families, or
households.
70
The legislative examples listed here are meant to be illustrative. While additional bills may be introduced in the 111th
Congress, this report will not necessarily be updated to reflect new legislation.
71
The American Clean Energy and Security Act of 2009, H.R. 2454.
72
The Cap and Dividend Act of 2009, H.R. 1862.
73
In the 110th Congress, H.R. 6186, the Investing in Climate Action and Protection Act and H.R. 7194, the Climate
Change Rebate Act of 2008. In the 111th Congress, H.R. 2454, the American Clean Energy and Security Act of 2009 as
introduced. (The tax credit was not included in the version passed by the House.)
74
The American Clean Energy and Security Act of 2009, H.R. 2454.
75
H.R. 2380, the Raise Wages, Cut Carbon Act of 2009.
76
In the 110th Congress, S. 3036, the Lieberman-Warner Climate Security Act of 2008.
77
H.R. 2454, the American Clean Energy and Security Act of 2009.
78
In the 110th Congress, S. 1766, the Low Carbon Economy Act of 2007, S. 3036, the Lieberman-Warner Climate
Security Act of 2008, H.R. 6186, the Investing in Climate Action and Protection Act, and H.R. 6316, the Climate
Market, Auction, Trust & Trade Emissions Reduction System Act of 2008. S. 1766 and S. 3036 would also have
funded a program for rural energy assistance that would have been created as part of the legislation.
79
In the 110th Congress, H.R. 6186, the Investing in Climate Action and Protection Act, H.R. 6316, the Climate
Market, Auction, Trust & Trade Emissions Reduction System Act of 2008, and H.R. 7194, the Climate Change Rebate
(continued...)
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In addition, President Obama’s FY2010 budget proposed to implement a cap-and-trade program
and devote a majority of the proceeds to the “Making Work Pay” tax credit, a reduction in payroll
taxes for those workers below a certain income threshold.80 (The tax credit was created as part of
the American Recovery and Reinvestment Act (P.L. 111-5).)81
This section of the report describes some of the delivery options that have been proposed for
returning allowance value to households. In evaluating these options, there are a number of
considerations that might be relevant to policymakers in choosing and implementing a
distribution system. Among considerations are the ability of a system to reach large numbers of
households, the existence of an administrative infrastructure and the costs of distributing funds,
and the ease of tailoring benefits to different consumer incomes and regions of the country. For
each of the potential delivery options, this section of the report discusses some of the
considerations that could make the options more or less appealing. This is not an exhaustive
discussion and is meant only to raise potential considerations. A table summarizing these options
is available in the Appendix. The considerations discussed in this section are:
•
Ability to Reach Households—A distribution system would have to reach
millions of potential beneficiaries (this would be true even in a system targeted
only to low-income households). For already-existing delivery mechanisms such
as the income tax system, we have some knowledge about their ability to deliver
funds. For untried mechanisms, such as universal rebates through an electronic
transfer or check, their effectiveness may be more speculative.
•
Administration—Implementing a delivery system would have administrative
costs. Some proposed delivery systems may have an administrative infrastructure
already in place, others may need to have an existing administrative system
adapted to distribute funds, while still others may need to create a new system.
The way in which funds are targeted would also have an effect on the
administrative costs. In general, the more targeted benefits are, the higher the
administrative costs of the system. 82 For example, a program with complicated
income eligibility rules and verification processes or a program that delivers
multi-tiered benefits is likely to be more expensive to administer than one with
simple eligibility rules and standard benefits for all recipients.
•
Consumer Flexibility—A system could deliver cash or in-kind benefits to
consumers. For example, funds that are targeted for energy assistance such as
LIHEAP and the Weatherization Assistance Program (WAP) can only be used for
specific purposes. However, if revenues were to be distributed as cash,
consumers would decide how best to use the benefit. According to economic
(...continued)
Act of 2008. In the 111th Congress, H.R. 2454, the American Clean Energy and Security Act of 2009.
80
Office of Management and Budget, FY2010 Budget, A New Era of Responsibility: Renewing America’s Promise,
Washington, DC, 2009, Table S-6, p. 123, http://www.whitehouse.gov/omb/assets/fy2010_new_era/
A_New_Era_of_Responsibility2.pdf.
81
The Making Work Pay tax credit gives a tax credit of up to $400 to individuals with adjusted gross income at or
below $75,000 and up to $800 for married couples filing jointly with adjusted gross income at or below $150,000
through a reduction in income taxes withheld from their paychecks.
82
See, for example, Julia Isaacs, The Costs of Benefit Delivery in the Food Stamp Program, U.S. Department of
Agriculture, Economic Research Service, March 2008, pp. 20-31, http://www.ers.usda.gov/Publications/CCR39/
CCR39.pdf.
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theory, beneficiaries may be better off with a cash transfer than with an in-kind
benefit of the same amount because they are not constrained in the way they use
the benefit.83 However, there is a tension in public policy between consumer
flexibility and limiting flexibility to ensure that policy priorities are achieved. As
discussed earlier, a flexible cash benefit may mean that consumers would not
reduce energy consumption as much as they might otherwise, potentially
reducing the effectiveness of a cap-and-trade program.
•
Tailoring Benefits for Household Size and Income—Allowance value may be
distributed to all households or to those that meet certain income eligibility
requirements. They may be the same for everyone or may vary based on
household size. Some existing federal benefit systems tailor their benefits by
income and number of family members, with benefits phased out at certain
income levels. An example is the Earned Income Tax Credit. In the case of other
delivery systems, a formula or eligibility determination process might need to be
created to take account of factors such as income and household size.
•
Accounting for Regional Differences—Congress may want to account for
regional differences when distributing allowance value. Some existing programs
such as LIHEAP and WAP take account of energy sources in determining how
funds are distributed. In the case of other delivery systems, a formula may need
to be created to incorporate energy price data. This approach may require new
data collection. Although it would be possible to tailor rebates based on expected
regional differences, doing so may decrease the transparency of particular
mechanisms. As discussed above, applying a regional calculation to individual
households would be imprecise and would likely (1) overcompensate regions at
the expense of others and (2) create winners and losers within a particular region.
•
Promoting Energy Efficiency—It may be desirable to use proceeds in a way
that promotes energy efficiency. Some options, such as funding for
weatherization, may increase energy efficiency, while lump sum payments may
not necessarily encourage increased efficiency beyond any conservation that
might take place due to increased prices. As a result, consumers might not reduce
consumption to the same degree they would if there were no reimbursement to
households. Policymakers could complement the rebate mechanism with an
educational/outreach program. The program could offer suggestions of ways
households could spend the rebates in terms of energy efficiency activities and
explain the long-term (financial) benefits of improving a home’s energy
efficiency.
On their own, individual options such as those described in this section may have limitations that
do not allow them to reach all the households that Congress may wish to target. However, the
options could be used in combination to assist everyone from those living in poverty to those
considered middle-class, to all consumers, whether working, unable to work, or retired.
83
See, for example, Janet Currie and Firouz Gahvari, Transfers In Cash and In Kind: Theory Meets the Data, National
Bureau of Economic Research, October 2007, http://www.nber.org/papers/w13557.
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Direct Payments
One method of allocating proceeds from a cap-and-trade program would be to provide direct
payments, or rebates, to consumers via check or electronic transfer in order to compensate for
increased energy costs. This option is sometimes referred to as “cap-and-dividend,” and is usually
proposed as an equal payment for all consumers.84 Proposals have been made that would deliver
funds to individuals or to households.
Considerations that could be relevant in setting up a direct rebate system include the following:
•
Ability to Reach Households—Currently, there is no existing benefit
distribution system that reaches every individual who is lawfully present in the
United States; nor is there a single repository of information that contains
relevant data such as name, address, Social Security number, and residency status
for every person. Creating one would likely require the involvement and
coordination of more than one federal agency. Between them, the Social Security
Administration (SSA) and Internal Revenue Service (IRS) may be able to reach a
large percentage of Americans.
•
The Social Security Administration (SSA) has name, address, and Social
Security number records for millions of Americans due to its role in
distributing benefits to retirees and persons unable to work due to disability.85
In addition, SSA tracks the covered earnings of workers who pay Federal
Insurance Contributions Act (FICA) taxes in order to fund Social Security
and Medicare.86
•
The Internal Revenue Service has information about taxpayers and their
dependents. 87 The IRS would not have records for those people who do not
file taxes, generally those whose income does not reach the threshold
required to file. 88
84
In the 111th Congress, the Cap and Dividend Act of 2009 (H.R. 1862) would distribute dividends to “any individual
with a valid social security number (other than a nonresident alien individual) who is lawfully present in the United
States ...,” while the American Clean Energy and Security Act of 2009 (H.R. 2454) would “distribute funds ... on a per
capita basis to each household in the United States” (excluding those not lawfully present).
85
In FY2008, SSA distributed monthly Old Age, Survivors, and Disability Insurance (OASDI) benefits to
approximately 50 million individuals. SSA also pays monthly benefits to Supplemental Security Income (SSI)
beneficiaries—including those who do not have a sufficient work record to receive OASDI benefits. In FY2008, 7.5
million individuals received monthly SSI benefits. For information about SSA’s distribution of benefits, see CRS
Report R40207, Social Security Administration: Workloads, Resources, and Service Delivery, by (name redacted).
86
In FY2008, SSA tracked the FICA taxes paid by 165 million workers.
87
Through the end of 2008, the IRS received 2007 tax returns from more than 156 million filers. Internal Revenue
Service, Statistics of Income—Reports for Filing Year 2008—Tax Year 2007, End of Year Report, http://www.irs.gov/
taxstats/article/0,,id=184855,00.html. Tax returns contain information not only for the individual filing taxes, but also
his or her dependents. A dependent can be a spouse, children (up to age 19 or, if a student, age 24), or other relatives if
they have income less than $3,500 for tax year 2008 and are supported by the tax filer. U.S. Department of the
Treasury, Internal Revenue Service, Tax Rules for Children and Dependents, Publication 929, January 6, 2009, p. 25,
http://www.irs.gov/pub/irs-pdf/p929.pdf.
88
Whether an individual or household must file federal income taxes depends on filing status (single, head of
household, married filing jointly, married filing separately, or qualifying widow(er) with dependent child) and gross
income. For information on 2008 filing requirements, see U.S. Department of the Treasury, Internal Revenue Service,
Publication 501, Exemptions, Standard Deductions, and Filing Information, December 11, 2008, p. 2,
http://www.irs.gov/pub/irs-pdf/p501.pdf.
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•
A source of information for picking up those individuals who may not be
captured by either the Social Security system or the federal income tax
system may be state public benefit programs. Individuals who do not have
earned income, retirement income, or disability income may qualify for
public benefits such as SNAP and Temporary Assistance for Needy Families
(TANF). State systems would, in most cases, have contact information for
those individuals and their family members who qualify for benefits.89
•
Administration—There is not currently a unified administrative infrastructure in
place that would reach all Americans. The costs of a system would depend in part
on the frequency with which funds would be delivered as well as whether
payments would be tailored for income, family size, energy prices, or for other
reasons. In addition, the manner of delivery—paper versus electronic—would
make a difference; according to the Treasury Department, it costs the government
$1.03 to send a paper check and 10.5 cents to deliver benefits electronically.90
The way in which benefits under recent economic stimulus bills were distributed
may be instructive. When the federal government distributed rebate checks
pursuant to the Economic Stimulus Act of 2008 (P.L. 110-185), the administrative
costs of extending rebates to around 119 million tax filers were approximately
$215 million.91 In 2009, the American Recovery and Reinvestment Act (P.L. 1115) provided funds so that each Social Security recipient (approximately 50
million individuals in 2008) and SSI recipient (approximately 7.5 million
individuals) would receive a payment of $250. Congress appropriated $90
million to SSA for administering these payments.92
•
Consumer Flexibility—Households would have flexibility in how they chose to
use a direct rebate. Funds could be used for utility bills, gasoline expenses, or any
other good or service.
•
Tailoring Benefits for Household Size and Income—Rebates could be
increased to account for lower income levels or greater numbers of household or
family members. As discussed above, however, this flexibility could affect
administrative costs of the rebates by requiring the periodic collection of income
and other financial data as well as the calculation of benefit levels.
•
Accounting for Regional Differences—Although it would be possible to tailor
rebates based on expected regional differences, doing so would decrease the
transparency of the mechanism. As with income and family size it would likely
add to the administrative expense, particularly if new data were to be
incorporated frequently.
89
In FY2007, more than 11 million households representing more than 26 million people received SNAP benefits. U.S.
Department of Agriculture, Food and Nutrition Service, Supplemental Nutrition Assistance Program Average Monthly
Participation, March 26, 2009, http://www.fns.usda.gov/pd/15SNAPpartPP.htm. The TANF caseload as of September
2008 was 1.6 million families consisting of 3.8 million recipients. U.S. Department of Health and Human Services,
Administration for Children and Families, TANF Quarterly Caseload Report, January 14, 2009,
http://www.acf.hhs.gov/programs/ofa/data-reports/caseload/caseload_current.htm.
90
U.S. Department of Treasury, Financial Management Service, Electronic Funds Transfer Overview Webpage,
Accessed May 1, 2009, http://www.fms.treas.gov/eft/index.html.
91
Telephone conversation with Matt Pickford, analyst, Congressional Budget Office, April 27, 2009.
92
CRS Report RS22677, Social Security Administration: Administrative Budget Issues, by (name redacted).
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•
Promoting Energy Efficiency—A direct rebate would not necessarily promote
energy efficiency beyond any conservation that might take place as the result of
increased prices. This could potentially reduce the effectiveness of a cap-andtrade program.
Fund Disbursal Through the Tax System
Funds from a GHG emission control program could also be delivered to households through the
tax system, specifically through either the FICA (Federal Insurance Contributions Act) Social
Security and Medicare contributions system or the federal income tax system. One option would
be to reduce the amount of income taxes or FICA taxes that are withheld from earned income in
workers’ paychecks.93 (These taxes, together with income taxes withheld at the state and local
levels, are sometimes referred to collectively as payroll taxes.) Another option would be to deliver
a refundable tax credit to households through the federal income tax system. 94
Considerations that could be relevant in using the tax system to distribute benefits include the
following:
•
Ability to Reach Households—
•
Payroll Taxes—Delivery of funds by reducing payroll taxes would reach
those individuals who work and have taxes withheld from their pay.
According to CBO, about 80% of households would be eligible for a payroll
tax rebate, with about 54% of those in the lowest income quintile
qualifying. 95 In the case of FICA taxes, employers and employees each pay
half of the total tax withheld, so one consideration could be whether to
calculate a reduction based on just the employee’s contribution or both the
employer’s and employee’s contributions.96
•
Income Tax Credit—A tax credit would reach those individuals who file
income taxes. There is a portion of the population that does not file taxes at
all, in general because they do not reach the income thresholds required to
file. However, those individuals could be encouraged to file in order to
receive a tax credit.97 In addition, a portion of those who file taxes do not
93
For example, the “Making Work Pay” tax credit reduces income taxes withheld from workers with income below
certain thresholds. President Obama has proposed to use the tax credit as a means of delivering benefits under a capand-trade proposal. Another proposal, H.R. 2380, the Raise Wages, Cut Carbon Act of 2009, would use proceeds from
a carbon tax to reimburse the Social Security Trust Fund, which would allow FICA taxes for both employers and
employees to be reduced.
94
For example, in the 111th Congress, H.R. 2454, the American Clean Energy and Security Act of 2009 as introduced,
would have created a tax credit for low-income consumers.
95
CBO, Letter to Senator Bingaman (June 17, 2008), Options for Offsetting the Economic Impact on Low- and
Moderate-Income Households of a Cap-and-Trade Program for Carbon Dioxide Emissions, p. 5, http://www.cbo.gov/
ftpdocs/93xx/doc9319/06-17-ClimateChangeCosts.pdf.
96
For example, a proposal by economist Gilbert Metcalf would calculate an income tax credit based on both employer
and employee contributions to payroll taxes. See Gilbert E. Metcalf, A Proposal for a U.S. Carbon Tax Swap: An
Equitable Tax Reform to Address Global Climate Change, The Hamilton Project, Brookings Institution, Discussion
Paper 2007-12, October 2007, p. 14, http://www.brookings.edu/~/media/Files/rc/papers/2007/10carbontax_metcalf/
10_carbontax_metcalf.pdf.
97
For example, when the federal government distributed rebate checks pursuant to the Economic Stimulus Act of 2008
(P.L. 110-185), the IRS encouraged individuals who would not ordinarily be required to file income taxes to file a
(continued...)
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owe federal income taxes. Some tax credits can only be used to offset income
tax liability and do not extend beyond the amount of taxes that someone
owes; a refundable tax credit would be necessary to reach those who do not
owe taxes.
•
Administration—Using the tax system to deliver funds would not require
creation of a new administrative infrastructure to reach households because
existing tax collection systems could be used for this purpose. However, there
would likely be increased administrative costs depending on the elements of the
program. There could be increased numbers of individuals filing taxes in order to
take advantage of a new tax credit or costs involved in adjusting withholding for
payroll tax reductions.
•
Consumer Flexibility—Households would have flexibility in how they chose to
use funds delivered through the tax system. Funds could be used for utility bills,
gasoline expenses, or any other good or service.
•
Tailoring Benefits for Household Size and Income—The IRS already gathers
taxpayer information regarding number of dependents and income, so this
information would not have to be collected separately in order to tailor benefits
through the income tax system to household size and income. However,
information regarding those who pay FICA taxes may not include information
regarding total household size, nor does it necessarily represent total household
income. Information about household members and income would have to be
collected if funds were to be tailored under FICA reductions.
•
Accounting for Regional Differences—The tax system does not currently have
a deduction or credit that takes account of energy prices. To do so would add a
layer of complexity to the process of determining funds to which a household
would be entitled.
•
Promoting Energy Efficiency—A rebate through the tax system would not
necessarily promote energy efficiency beyond any conservation that might take
place as the result of increased prices. This could potentially reduce the
effectiveness of a cap-and-trade program.
Allowances to Energy Distributors
Another mechanism of providing assistance to household consumers is through the distribution of
allowance value to local energy distributors, called local distribution companies (LDCs). LDCs
are the entities that deliver electricity or natural gas to consumers, local businesses, and industry
within a geographic area; typically they receive the energy supply from generators (in the case of
electricity) and producers (in the case of natural gas). Under this approach, the energy distributors
would be required to pass along the value of the allowances for the benefit of energy consumers.
This could occur in several ways, and Congress could stipulate certain provisions in the
legislation. For example, policymakers could require the LDC to sell the allowance and use the
(...continued)
return so that they could receive a rebate check. See IRS website, “Do You Need to File a Federal Income Tax
Return?” http://www.irs.gov/individuals/article/0,,id=96623,00.html. The number of individuals who filed taxes for the
2007 tax year grew to over 155 million, up from 136 million in 2006. Some of this is likely due to the rebate checks.
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proceeds to support energy efficiency efforts, which would ultimately benefit consumers. In
addition, policymakers could authorize LDCs to use the proceeds to provide rebates for portions
of consumers’ energy bills.
This mechanism could be used to alleviate price burdens on all energy consumers or certain
subgroups.98
Considerations that could be relevant in relying on energy suppliers to compensate households for
increased costs of energy include the following:
•
Ability to Reach Households—Those households that use natural gas,
electricity, heating oil, and propane to heat their homes represent more than 96%
of all occupied housing units in the country.99 Therefore, if a GHG emission
control program directed natural gas and electricity LDCs to sell allowances for
the benefit of their customers, and if states were given the responsibility for
compensating heating oil and propane customers, then nearly all households in
the United States could be reached. It is possible, though, that renters whose
utilities are included in rent may not see a benefit delivered through LDCs and
states. In addition, the household benefits would largely depend on how the
LDCs chose to return the allowance value to customers. Policymakers may
consider including detailed instructions to avoid inconsistent applications across
the country that may otherwise occur.100
•
Administration—Presumably LDCs would be able to pass on benefits to
households through their billing systems without the need for additional
administrative infrastructure. If a system were to target household customers
based on their income or household size, administrative costs could increase.
There may also be a need for an additional layer of administration, with state
and/or federal governments overseeing a program in which LDCs are given
discretion to help consumers. If states were to oversee a program to channel
funds to heating oil and propane users, an application system may have to be
established. This could occur through existing low-income energy assistance
programs (described in the next section of this report).
•
Consumer Flexibility—The way in which households could use funds under a
system administered by LDCs would depend on whether fund transfers took the
form of cash rebates or credits toward energy bills. A direct cash rebate could be
used for any purpose, while a credit would only help households with their home
98
For example, H.R. 2454, the American Clean Energy and Security Act of 2009, would allocate emission allowances
to electricity companies, natural gas suppliers, and states (on behalf of heating oil, propane, and kerosene consumers) to
be used for the benefit of residential and commercial (industrial) energy consumers. In the 110th Congress, the
Lieberman-Warner Climate Security Act of 2008 (S. 3036) similarly would have given some of the responsibility for
mitigating the price increases faced by low- and middle-income consumers to electric and natural gas distribution
companies (but would not have included heating oil or propane suppliers).
99
The percentages for each source were 50% natural gas for heat, 34% electricity, 7.4% heating oil, and 5.5% liquefied
petroleum gas. U.S. Census Bureau, 2007 American Community Survey, Table B25040, House Heating Fuel.
Remaining heating sources were coal (0.12% of occupied housing units), wood (1.8% of occupied housing units), solar
energy (0.03% of occupied units), and other source or no source (0.41% and 0.88% respectively).
100
See Testimony of Dallas Burtraw (Resources for the Future) for a hearing before the Senate Committee on Finance
(August 4, 2009).
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energy expenses. However, reducing utility bills could free up funds for other
uses.
•
Tailoring Benefits for Household Size and Income—LDCs such as natural gas
and electricity suppliers presumably do not have readily available information
about the households they serve, such as number of people living in the
household and household income. 101 Although it would be possible to tailor
benefits based on these factors, as discussed above, it would require additional
administrative responsibility to gather the necessary information and to
implement a tiered benefit system.
•
Accounting for Regional Differences—Proponents of this mechanism maintain
that one of its strengths is its ability to account for regional differences, and thus
distribute allowance value in a more equitable fashion (so they argue).102 For
instance, Congress could distribute allowances to LDCs based on measures that
vary by local energy provider: energy delivered, carbon-content of energy
delivered, or some combination of both (see discussion of H.R. 2454 below).
However, this potential ability to account for regional differences is not unique to
this mechanism. Indeed, this approach may not have a particular advantage over
other approaches in this regard. As discussed earlier, local electricity providers
(i.e., LDCs) do not collect data regarding the carbon content of the electricity
they deliver, a critical measurement in the debate over regional differences.
Federal agencies (e.g., EPA and EIA) have prepared approximations of this data
at the regional (or subregional) level, but this data could be used in other
mechanisms to tailor allowance value distributions to regional differences.
•
Promoting Energy Efficiency—Depending on the way in which a program were
to be implemented, it would be possible to improve energy efficiency. For
example, benefits could be tied to reductions in energy use. Moreover,
policymakers could stipulate (as is done in H.R. 2454, discussed below) that
certain percentages of the allowance value be used to support this objective.
Conversely, if funds were used to reduce rates, a system might discourage energy
conservation.
Existing Energy Assistance Programs
Policymakers may consider using allowance value to increase support for existing energy
assistance programs. Two of these programs are discussed below.
The Low Income Home Energy Assistance Program
The Low Income Home Energy Assistance Program (LIHEAP) is a block grant program under
which the federal government gives states, tribes, and territories annual grants to operate home
101
Many utilities participate in programs through which low-income households receive assistance with energy bills.
Typically utilities partner with social services organizations, which administer benefits. It is possible that some energy
suppliers may have access to household information through these networks.
102
See e.g., Testimony from Jeffry E. Sterba (on behalf of the Edison Electric Institute) Before the United States House
of Representatives Committee on Energy and Commerce Subcommittee on Energy and Environment, Hearing on
Allocation of Emissions Allowances (April 23, 2009).
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energy assistance programs for low-income households (defined as those with incomes at or
below 60% of state median income or 150% of poverty, whichever is greater103). States may use
funds to help eligible households pay heating or cooling bills; pay for low-cost weatherization
projects; provide services to reduce need for energy assistance; and help with energy-related
emergencies such as preventing utility disconnection or repairing a furnace.104
A number of GHG emission control proposals introduced in the 110th Congress would have
allocated a portion of allowance auction proceeds to LIHEAP to mitigate higher energy prices.105
Considerations that could be relevant in using LIHEAP to help low-income consumers face the
increased costs of energy include the following:
•
Ability to Reach Households—LIHEAP benefits are targeted to assist lowincome households, federally defined as those with incomes at or below 150% of
poverty or 60% of state median income. However, LIHEAP does not reach all
households defined as “low income.” First, states have some flexibility within the
federal income eligibility guidelines, and they may set income eligibility as low
as 110% of poverty. In addition, unlike some other means-tested programs such
as SNAP or Medicaid, where meeting eligibility standards entitles one to
benefits, LIHEAP has not reached everyone who is eligible due, in large part, to
funding limitations. According to the most recent data available from the
Department of Health and Human Services (HHS), less than 20% of federally
eligible LIHEAP households received benefits in FY2006.106 However, it is
possible that supplements to the program through a GHG emission control
program would provide funding to serve a greater number of eligible households.
•
Administration—As an existing program, no administrative infrastructure
would have to be developed to deliver funds through LIHEAP. The program
allows grantee states, tribes, and territories to use up to 10% of their grants for
administrative purposes. In FY2006, approximately 7.7% of total LIHEAP funds
were used for administration.107 If funding for the program were increased or the
number of beneficiaries served grew as part of a greenhouse gas reduction
program, it is possible that the amount of funds necessary to administer LIHEAP
benefits would also increase.
•
Consumer Flexibility—LIHEAP funds would address higher residential energy
costs and would not directly address potential price increases in gasoline or other
energy-intensive goods and services. It is possible, however, that a LIHEAP
payment toward utility bills may free up funds for other expenses.108
103
As part of the FY2009 LIHEAP appropriations, Congress gave states the discretion to serve households with
incomes at or below 75% of state median income.
104
42 U.S.C. § 8624(b).
105
These included the Low Carbon Economy Act of 2007 (S. 1766), the Lieberman-Warner Climate Security Act of
2008 (S. 3036), the Investing in Climate Action and Protection Act (H.R. 6186), and the Climate MATTERS Act of
2008 (H.R. 6316).
106
U.S. Department of Health and Human Services, Administration for Children and Families, Low Income Home
Energy Assistance Program Report to Congress for Fiscal Year 2006, April 22, 2009, pp. 20-21.
107
Ibid., p. 16.
108
For example, there is some evidence that low-income households reduce spending on food during those months
when heating and cooling costs are high. See, for example, Mark Nord and Linda S. Kantor, “Seasonal Variation in
Food Insecurity Is Associated with Heating and Cooling Costs among Low-Income Elderly Americans,” The Journal of
(continued...)
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•
Tailoring Benefits for Household Size and Income—States have the discretion
to adjust LIHEAP benefits based on household size and income. In fact, the
LIHEAP statute requires states to target households with “the lowest incomes and
the highest energy costs or needs in relation to income.”109 As a result, LIHEAPrecipient households are typically more needy than the population that is eligible
to receive LIHEAP benefits.
•
Accounting for Regional Differences—LIHEAP has a statutory formula that
allocates funds to states based on both the type of fuel used by low-income
households as well as the price by fuel type. However, there is a lag in data used
in the formula that might not make it immediately responsive to the effects of a
GHG emission control program.110 The availability of recent data may be more
important in distributing allowance auction proceeds, where price fluctuations
could be an important part of determining need.
•
Promoting Energy Efficiency—Although the LIHEAP statute allows states to
use 15% of funds for weatherization (up to 25% with a waiver from HHS), the
majority of LIHEAP expenditures currently go toward direct subsidies for
heating and cooling. In fact, some states choose not to weatherize at all.
The Weatherization Assistance Program
The Weatherization Assistance Program (WAP) provides low-cost home weatherization services
to low-income families, defined as those with incomes at or below 200% of poverty, although
states may choose to use LIHEAP eligibility guidelines (which go up to 60% of state median
income). 111 Through WAP, funds are distributed to states, the District of Columbia, Puerto Rico,
tribes, and territories112 via formula; they, in turn, distribute funds to public or private nonprofit
organizations to administer the program and undertake the weatherization activities in specific
geographic areas around the state.
As with LIHEAP, a number of the GHG emission control proposals introduced in the 110th
Congress would have allocated a portion of allowance value to the WAP.113 Considerations that
could be relevant in using WAP to help low-income consumers face the increased costs of energy
include the following:
(...continued)
Nutrition, vol. 136, no. 11 (November 2006), pp. 2939-2944, and Jayanta Bhattacharya, Thomas DeLeire, and Steven
Haider, et al., “Heat or Eat? Cold-Weather Shocks and Nutrition in Poor American Families,” American Journal of
Public Health, vol. 93, no. 7 (July 2003), pp. 1149-1154.
109
42 U.S.C. § 8624(b)(5).
110
For example, when HHS most recently updated the LIHEAP formula, in 2009, the formula factors were calculated
using 2006 energy consumption data, temperature data, price data, and low-income fuel source data.
111
The American Recovery and Reinvestment Act (P.L. 111-5) increased income eligibility to 200% of poverty. Prior
to that, it had been 150% of poverty. 42 U.S.C. § 6862(7).
112
The territories and Puerto Rico became eligible WAP recipients as part of the Energy Independence and Security
Act of 2007 (P.L. 110-140).
113
These included the Low Carbon Economy Act of 2007 (S. 1766), the Lieberman-Warner Climate Security Act of
2008 (S. 3036), the Investing in Climate Action and Protection Act (H.R. 6186), and the Climate MATTERS Act of
2008 (H.R. 6316).
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•
Ability to Reach Households—Like LIHEAP, WAP does not reach all lowincome households that are eligible for services. In 2006, the most recent year for
which data are available, 104,382 dwellings were weatherized.114 (Note,
however, that the American Recovery and Reinvestment Act (ARRA, P.L. 111-5)
provided $5 billion for WAP over three years compared to previous
appropriations levels between $200 and $300 million.) A possible limitation in
the ability of WAP to serve eligible households is its historic focus on
weatherizing single-family homes rather than multifamily structures.115 States
may choose to prioritize single-family homes, and program rules may also
present barriers to weatherizing multifamily developments.116 These limitations
may become more flexible, at least in regard to multifamily housing funded
through the Department of Housing and Urban Development (HUD). In response
to ARRA, the Department of Energy and HUD entered into a memorandum of
understanding so that WAP funds could be used in HUD-subsidized multifamily
dwelling units with streamlined income verification of residents.117 HUD spends
an estimated $4 billion per year (more than 10% of its budget) to pay energy
costs in subsidized multifamily housing. 118
•
Administration—Grantees may use up to 10% of WAP funds for administrative
expenses. 119 In addition, a portion of WAP funds are allocated to training and
technical assistance for the Community Action Agencies that administer WAP
funds in local communities. In FY2008, $4.5 million, approximately 2% of the
total WAP allocation, was used for this purpose.120
•
Consumer Flexibility—WAP funds are used for the purpose of reducing the
costs of home energy, so the program would not directly address potential price
increases in gasoline or other energy-intensive goods and services. However, as
with LIHEAP, reducing home energy bills may free up funds for other expenses.
•
Tailoring Benefits for Household Size and Income—States are required to
target needy populations for WAP services. WAP gives priority to elderly
residents, those with a disability, families with children, high residential energy
114
WAP Briefing Book, p. VII-1. Weatherization services may have been performed using a combination of WAP funds
and funds from other sources.
115
In 2006, approximately 19% of weatherized housing units were in multifamily structures; the remainder were
single-family homes or mobile homes. Ibid.
116
In order for a multifamily development to qualify for weatherization services, at least 66% of residents must be
income eligible for services. 10 C.F.R. § 440.22(b). For duplexes and buildings with four or fewer units, 50% of
residents must qualify. The benefits of weatherization must accrue to the residents, owners may not raise rent based on
the improvements, and states may require owners to make a contribution to the weatherization services. 42 U.S.C. §
6863.
117
Memorandum of Understanding Between Department of Energy and Department of Housing and Urban
Development, Coordinating Recovery Act Funds for Home Energy Retrofits, released May 6, 2009,
http://www.hud.gov/recovery/doemoucombined.pdf.
118
U.S. Department of Housing and Urban Development, Office of Policy Development and Research, Promoting
Energy Efficiency at HUD in a Time of Change, August 8, 2006, p. 2, http://www.huduser.org/Publications/pdf/
EnergyEfficiency.pdf.
119
42 U.S.C. § 6865.
120
U.S. Department of Energy, FY2010 Congressional Budget Request, p. 413, http://www.cfo.doe.gov/budget/
10budget/Content/Volumes/Volume3.pdf.
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users, and households with high energy burdens.121 In terms of adjusting benefits
for household size and income, once program eligibility is determined, the
amount of WAP funds used per household is based on the condition of the
dwelling unit and the need for weatherization services.
•
Accounting for Regional Differences—WAP uses a formula that takes account
of energy consumption and expenditures in determining how funds are allocated
to the states, though with similar time lags encountered with the LIHEAP
formula.
•
Promoting Energy Efficiency—Weatherization activities may prevent future
energy usage, thereby reducing overall household energy costs. An analysis of
statewide weatherization programs in 19 states found that after weatherization,
the average household using natural gas for heating saw a 22.9% reduction in
British thermal units (Btus) consumed for all home energy uses and a 32.3%
reduction in Btus used for home heating.122
Subsidies Through Other Income-Based Programs
Congress may consider using other, non-energy-related programs to provide assistance to
households. Two possible options are discussed below.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) could be another method of delivering funds from a GHG
emission control program to low-income households.123 The EITC is a refundable tax credit for
low-income workers based on their income, age, and number of qualifying children. 124 Under
current law, workers earn a credit for every dollar of earned income up to a certain income level
based on their tax filing status and the number of children claimed on their tax return.125 The
credit is refundable so that even those individuals who have no tax liability can benefit from the
EITC. For the 2008 tax year, the maximum credits ranged from $438 for filers with no children to
$4,824 for those with two or more children.
Considerations that could be relevant in using the EITC to help low-income consumers face the
increased costs of energy include the following:
121
10 C.F.R. § 440.16.
122
Martin Schweitzer, Estimating the National Effects of the U.S. Department of Energy’s Weatherization Assistance
Program with State-Level Data: A Metaevaluation Using Studies from 1993 to 2005, Oak Ridge National Laboratory,
September 2005, p. 11, http://weatherization.ornl.gov/pdf/CON-493FINAL10-10-05.pdf.
123
For example, in the 111th Congress, H.R. 2454, the American Clean Energy and Security Act, would expand the
EITC for certain individuals without qualifying children.
124
For more information about the EITC, see CRS Report RL31768, The Earned Income Tax Credit (EITC): An
Overview, by (name redacted).
125
For the 2008 tax year, single individuals with adjusted gross income (AGI) below $12,880 ($15,880 for married
filing jointly) qualified for the EITC. Single individuals with one child and AGI below $33,995 ($36,995 for married
couples filing jointly) qualified for the EITC. And single individuals with two or more children and AGI below $38,646
($41,646 for married couples filing jointly) qualified for the EITC.
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•
Ability to Reach Households—Currently the EITC is designed to reach workers
with earnings that do not exceed a certain level. Unlike LIHEAP or
Weatherization, those who are eligible for the tax credit can receive it as long as
they file their taxes appropriately. For the 2006 tax year, the number of EITC
recipients was approximately 23 million. 126 However, the EITC does not reach
those individuals and families who do not have earned income, which would
leave out some low-income households, including retired persons. The credit
may also leave out families with incomes too high to qualify for the EITC, but
who face burdensome energy price increases nonetheless. If Congress wanted to
expand the reach of the program to higher-income families, it could increase the
credit rate or the phase out level, increase income eligibility, or both.
•
Administration—Any expansion of the EITC to distribute funds to households
would be administered through the federal income tax system. The EITC has
been found to have administrative costs that range between 1% and 3% of
benefits claimed. 127
•
Consumer Flexibility—Households would have flexibility in how they chose to
use funds delivered through the tax system. Although many individuals claim the
EITC in one lump sum when they file their taxes, they also have the option of
spreading payments over the course of the year by including them in their
paychecks. This could help recipients deal with higher prices as they occurred.
•
Tailoring Benefits for Household Size and Income—The EITC is somewhat
responsive to household size, although for those families with more than four
members (two adults and two children) the credit does not grow with additional
children. The EITC is responsive to household income. The credit grows as
earned income grows, reaches a plateau, and is then phased out as income
continues to grow. 128
•
Accounting for Regional Differences—The EITC as it is currently administered
would not take account of energy prices faced by households in determining
benefits. Although it would be possible to incorporate regional differences when
determining benefits, this would add a layer to the administrative process.
•
Promoting Energy Efficiency—A benefit delivered through the EITC would not
necessarily promote energy efficiency beyond any conservation that might take
place as the result of increased prices. This could potentially reduce the
effectiveness of a cap-and-trade program.
Electronic Benefit Transfer Systems
Another option for reaching low-income households specifically would be to deliver funds
through the Electronic Benefit Transfer (EBT) systems that are used by state and local health and
human services agencies to deliver SNAP and other benefits. Since 2004, all 50 states, the
District of Columbia, Puerto Rico, Guam, and the Virgin Islands have implemented EBT systems
126
Internal Revenue Service, Statistics of Income—2006 Individual Income Tax Returns, p. 93, Table 2.5,
http://www.irs.gov/pub/irs-soi/06inalcr.pdf.
127
See footnote 82, The Costs of Benefit Delivery in the Food Stamp Program, p. A-2.
128
See footnote 124, CRS Report RL31768, The Earned Income Tax Credit (EITC): An Overview.
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through which they put money for federal and state benefits on cards similar to debit cards. All
states and territories deliver SNAP benefits through their EBT systems, and some deliver other
benefits as well. 129 In FY2007, more than 11 million households representing more than 26
million people received SNAP benefits.130
This option has been proposed in both the 110th and 111th Congresses.131 Considerations that
could be relevant in using EBT transfers to help low-income consumers face the increased costs
of energy include the following:
•
Ability to Reach Households—A system such as those in proposed legislation
would specifically target low-income households and, on their own, would not
reach middle- or high-income households.132 If EBT rebates were distributed to
SNAP-eligible individuals (those at or below 130% of poverty) an estimated 39
million individuals representing 18.5 million households would receive the
rebate.133
•
Administration—Because all states use EBT systems to deliver SNAP benefits,
the administrative infrastructure for delivering funds through a GHG emission
control program would be in place. The specific administrative costs involved
with delivery of EBT benefits are not known; however, the costs of SNAP
administration could be instructive. The federal government shares administrative
costs of SNAP with the states. In FY2007, the total administrative costs for both
the federal and state governments was $5.7 billion;134 varying sources estimate
that approximately 16% or 17% of SNAP dollars go toward administrative
costs.135 Of the federal share of funds in FY2007 (nearly $2.8 billion),
approximately $162 million went to issue benefits while $1.5 billion was used to
129
For example, over half of states use EBT cards to deliver Temporary Assistance for Needy Families (TANF)
benefits—the program sometimes referred to as welfare—while some also choose to deliver employment benefits,
child care assistance, General Assistance (a program for needy adults without children), and refugee assistance, among
others. The Department of Agriculture lists the status of each state’s EBT program at http://www.fns.usda.gov/fsp/
EBT/ebt_status_report.htm.
130
U.S. Department of Agriculture, Food and Nutrition Service, Supplemental Nutrition Assistance Program Average
Monthly Participation, March 26, 2009, http://www.fns.usda.gov/pd/15SNAPpartPP.htm.
131
At least two bills in the 110th Congress would have used EBT systems to provide rebates to low-income households.
These were the Climate Change Rebate Act of 2008 (H.R. 7194) and the Investing in Climate Action and Protection
Act (H.R. 6186). Both bills would have provided rebates to households meeting eligibility standards for SNAP benefits
(those with incomes at or below 130% of poverty) and would have delivered benefits on a monthly basis, with the
amount of benefits based on income, household size, and energy price increases. In the 111th Congress, H.R. 2454
would similarly deliver rebates to families who meet income eligibility guidelines. The bill would consider eligible
those who are eligible for SNAP, those who have income at or below 150% of poverty, and those households
consisting of single adults or married couples that receive the Medicare Part D subsidy, Medicaid, or Supplemental
Security Income.
132
H.R. 2454, the American Clean Energy and Security Act would make low-income households eligible for a rebate.
In the 110th Congress, both H.R. 7194 and H.R. 6186 would have created a climate rebate for low-income households.
133
Joshua Leftin and Kari Wolkwitz, Trends in Supplemental Nutrition Assistance Program Participation Rates: 2000
to 2007, U.S. Department of Agriculture, Food and Nutrition Service, June 2009, p. 10, http://www.fns.usda.gov/ora/
menu/Published/SNAP/FILES/Participation/Trends2000-2007.pdf (hereinafter Trends in Supplemental Nutrition
Assistance Program Participation Rates: 2000 to 2007).
134
United States Department of Agriculture, Food and Nutrition Service, Supplemental Nutrition Assistance Program
(SNAP) State Activity Report for FY2007, January 2009, p. 17, http://www.fns.usda.gov/snap/qc/pdfs/
2007_state_activity.pdf (hereinafter (SNAP) State Activity Report for FY2007).
135
See footnote 82, The Costs of Benefit Delivery in the Food Stamp Program, p. A-1.
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certify eligibility. 136 A majority of those who would qualify for EBT payments
would already have been determined to be eligible for SNAP (approximately
62% of eligible households received benefits in 2007137). Thus, an initial intake
and eligibility determination would not necessarily have to be performed for all
those who would be eligible.
•
Consumer Flexibility—An EBT rebate could give consumers flexibility similar
to the EITC. Households could prioritize their needs rather than being restricted
to a single use, such as utility payments. SNAP benefits, TANF benefits, and
others, are delivered monthly through EBT systems. If rebates were likewise
issued monthly, recipients might be better able to confront higher prices as they
occurred.
•
Tailoring Benefits for Household Size and Income—If an EBT rebate were to
have income guidelines like SNAP, then benefits could be tailored based on
family size and income. For example, maximum SNAP benefits vary with family
size, increasing incrementally for each additional family member.138 Benefits are
also reduced as family income increases.
•
Accounting for Regional Differences—It would be possible to create a system
of EBT rebates that included regional differences when determining benefit
levels. This added complexity could increase administrative costs, however.
•
Promoting Energy Efficiency—A rebate through the state EBT systems would
not necessarily promote energy efficiency beyond any conservation that might
take place as the result of increased prices. This could potentially reduce the
effectiveness of a cap-and-trade program.
Legislation in the 111th Congress
This section of the report discusses legislation in the 111th Congress that proposes to use one or
more of the options to assist households that were discussed in the previous section. This section
is not meant to track all GHG emissions bills that have been introduced in the current Congress.
H.R. 2454, the American Clean Energy and Security Act of 2009
The American Clean Energy and Security Act (H.R. 2454, introduced by Representatives
Waxman and Markey), which the House passed on June 26, 2009, has several provisions that
would attempt to reimburse households for increased costs associated with a cap-and-trade
program established by the bill. The bill would accomplish this by (1) distributing allowances at
no cost to various entities, including local distribution companies (LDCs) and states, which would
then use the value of the allowances to assist households, and (2) distributing emission allowance
auction proceeds directly to households.
136
See footnote 134, (SNAP) State Activity Report for FY2007, p. 19.
See footnote 133, Trends in Supplemental Nutrition Assistance Program Participation Rates: 2000 to 2007, p. 10.
138
7 C.F.R. § 273.10. The most recent table of maximum benefits is available on the Food and Nutrition Service
website, http://www.fns.usda.gov/fsp/applicant_recipients/fs_Res_Ben_Elig.htm.
137
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Assistance to All Households Through Energy Distributors
H.R. 2454 would allocate allowances to electricity local distribution companies (electricity
LDCs) and natural gas local distribution companies (natural gas LDCs) to be used for the benefit
of residential and commercial consumers. The bill would also allocate allowances to states to be
used for the benefit of heating oil, propane, and kerosene consumers.
A substantial portion of the emission allowances would be used to support energy consumers in
the early years of the program. Between 2012 and 2029, electricity LDCs would receive a
gradually diminishing portion of allowances, starting with approximately 38% in 2012 and
decreasing to 6% by 2029; natural gas LDCs would receive 9% of emission allowances in 2016,
decreasing to 2% in 2029; and states would receive 1.9% of allowances in 2012, decreasing to
0.3% by 2029. In 2030, the allocations to support energy consumers would cease.
In the case of electricity LDCs, allowances would be allocated through a two-part formula: 50%
based on each LDC’s carbon content of electricity and 50% based on the amount of electricity
delivered. Benefits from the allowances would be distributed ratably to each ratepayer class
(residential versus commercial), and then “equitably” to each ratepayer within the class.
H.R. 2454 would require certain processes to ensure that electricity LDCs comply with the bill’s
requirements regarding consumers. State regulatory authorities would be required to either
publish regulations or conduct proceedings regarding how electricity LDCs will fulfill the
requirements of H.R. 2454. Electricity LDCs would be required to submit periodic plans
(approved by state regulators) to the EPA Administrator describing how they will use the value of
the allowances to benefit consumers and to report annually on their use of allowances. The EPA
Administrator would audit a sample of electricity suppliers every year to ensure that emission
allowances are used “exclusively for the benefit of retail ratepayers.”
In the case of natural gas LDCs, beginning in 2016, allowances would initially be distributed
based on each company’s average annual retail natural gas deliveries. In later years, the
distribution formula would also take into account the number of customers for each company. As
with electricity LDCs, H.R. 2454 would require natural gas LDCs to deliver benefits to ratepayers
based on the amount of natural gas used by each class and then equitably to each consumer within
the ratepayer class with the same limitation that any rebate not be based on the amount of natural
gas delivered to each ratepayer. Unlike electricity LDCs, natural gas LDCs would be required to
use one-third of allowances for energy efficiency programs that benefit natural gas consumers.
Similar requirements regarding submission of plans and reports would apply to natural gas LDCs,
and the EPA Administrator would audit a sample of companies every year.
In order to reach heating oil, propane, and kerosene consumers, H.R. 2454 would distribute
allowances to states based on their share of the carbon content of heating oil, propane, and
kerosene sold to consumers within the state. States would be required to use at least half of the
allowances for energy efficiency programs targeted to heating oil, propane, and kerosene
consumers; the remainder would be used to provide rebates or other direct financial assistance to
consumers (to the extent practicable, through existing energy efficiency and consumer energy
assistance programs). States would be required to submit reports to the EPA Administrator about
the use of allowances and cost effectiveness of energy efficiency measures; the reports would also
include independent third-party evaluations of the energy efficiency and consumer assistance
programs.
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Small Electricity LDCs
Small electricity LDCs—defined as those that deliver less than four million megawatt hours of
electricity to retail consumers—would receive a declining percentage (0.5% in 2012) of emission
allowances (in addition to the allotment to LDCs generally) at no cost. H.R. 2454 would require
small LDCs to use the allowance value, in part, for assistance programs for their low-income
customers (those with incomes at or below 200% of poverty). The EPA Administrator would be
required to establish eligibility criteria and guidelines for this consumer assistance program and
small LDCs would be required to report on the assistance provided.
Rebates to All Households
H.R. 2454 would also establish a Climate Change Consumer Refund Account in the United States
Treasury. The account would be funded through the sale of allowances beginning in 2021, with
additional allowances auctioned beginning in 2026. Proceeds from the account would be
distributed as tax refunds “on a per capita basis to each household in the United States.”139
Citizens and lawful permanent residents would be eligible for the tax refunds.
Low-Income Energy Refund Program
H.R. 2454 would establish a new low-income benefit program, the Energy Refund Program, that
would reimburse eligible households for the estimated loss in purchasing power to families
caused by increases in energy prices resulting from the bill. The proposed new program (the
proposed Title XXII of the Social Security Act) would be administered at the federal level by the
Department of Health and Human Services (HHS) and at the state level by agencies that
administer other assistance programs, such as cash welfare and SNAP.
Eligibility
The Energy Refund Program would make households with gross incomes at or below 150% of
poverty eligible for the maximum benefit (see below for a description of the benefit). The benefit
would be phased out for households with incomes over 150% of poverty. The CBO estimates that
program would serve 34.4 million households in 2012, rising to 35.5 million in 2019. This is
about double the number of households CBO estimates would be served in the SNAP program
(16.5 million estimated SNAP households in FY2012).
Households140 that already receive certain need-tested benefits would be automatically eligible for
the benefit. These households include those that already receive:
•
nutrition assistance through SNAP, the Food Distribution program on Indian
Reservations, or the programs of nutrition assistance that operate in lieu of SNAP
in Puerto Rico and American Samoa;
139
Section 789 (of the newly established Title VII of the Clean Air Act).
In general, the definition of household used for the Energy Refund Program is the same as that used for SNAP. See
7 U.S.C. § 2012. In addition to using the SNAP definition of household, the bill would make singles or couples who
receive either SSI or Medicare Part D premium subsidies their own household. The Secretary of HHS would be
required to establish rules for households that include persons described above who live with other members.
140
Congressional Research Service
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Assisting Households with the Costs of a Cap-and-Trade Program
•
a benefit or service from TANF that also receive a SNAP benefit;141
•
a subsidy based on income for prescription drugs under the Medicare Part D
program; or
•
Supplemental Security Income (SSI).
Additionally, the Secretary of Health and Human Services (HHS) would be charged to
promulgate regulations to determine whether information used for determining eligibility under
state Medicaid or Children’s Health Insurance Program (CHIP) can be used to automatically
determine eligibility for the Energy Refund Program.
The bill would make eligible for benefits all those in the United States lawfully, whether citizens
or noncitizens. (Many need-tested programs restrict benefits for noncitizens. See CRS Report
RL31114, Noncitizen Eligibility for Major Federal Public Assistance Programs: Policies and
Legislation, by (name redacted).)
Benefits
The maximum benefit for the Energy Refund Program would be the estimated loss in purchasing
power caused by the American Clean Energy and Security Act of 2009 for families with gross
incomes of 150% of the poverty threshold. The benefit would vary by household size. Separate
benefit amounts would be computed for households of sizes one through four, with households of
five or more receiving a benefit based on the average loss of purchasing power for all households
of five or more persons. The loss in purchasing power for the next fiscal year would be estimated
by the Energy Information Administration and published annually (by August 31) in the Federal
Register and the benefit adjusted annually. The benefit would be paid monthly, with the monthly
benefit being 1/12th of the estimated annual loss in purchasing power. However, the bill provides
that if the monthly benefit would be too small to pay efficiently on a monthly basis, the benefit
would be paid quarterly.
Table 4 shows the CBO’s estimate of the maximum benefit amount for the Energy Refund
Program for selected years, 2012 to 2019. The annual benefit amount is relatively small. For
example, in 2012 a household of four would receive a little less than $400 per year from the
program. This contrasts with SNAP, where the benefit for a family of four is expected to exceed
$400 per month. However, the years in the budget window 2012-2019 would be very early in the
implementation of the cap-and-trade system. In these years, most allowances would be given
away rather than auctioned and the reduction requirements are relatively less stringent compared
to other years: thus, the costs of the system are relatively low. Costs—and the compensating
benefits—may be higher in real terms later in the program.
141
All families receiving TANF are “categorically eligible” for SNAP. Since all SNAP households would receive the
Energy Refund Program benefit, TANF families would as well.
Congressional Research Service
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Assisting Households with the Costs of a Cap-and-Trade Program
Table 4. Congressional Budget Office (CBO) Estimates of the Annual Maximum
Benefit Under the Energy Refund Program of H.R. 2454 as It Passed the House,
Selected Years 2012 to 2019
2012
2016
2019
One Person
$201
$312
$373
Two People
285
437
520
Three People
308
473
562
Four People
394
600
711
Five or More People
465
705
834
Average Per Household
285
435
515
Maximum Credit Amount Per Household
Source: Unpublished data from the Congressional Budget Office (CBO).
Figure 3 shows the estimated structure of the benefit, using the 2012 estimate of the benefit for a
family of four. It shows that eligibility for the benefit ends relatively quickly above 150% of
poverty—reaching $0 at about 159% of poverty. The very rapid reduction in the benefit is, in part,
because of its small size in the early years. A larger benefit would produce a more graduated
phase-out. If, for example, the real value of the benefit would triple to $1,182 per year, eligibility
for the benefit would end at 176% of the poverty threshold.
Congressional Research Service
39
Assisting Households with the Costs of a Cap-and-Trade Program
Figure 3. Estimated Energy Refund Program Benefit for a Household of Four in 2012
Under H.R. 2454 As It Passed the House
Based on Congressional Budget Office Estimates
Energy Refund
Benefit
$500
$450
Maximum Benefit for a Family of 4: $394
$400
$350
$300
$250
Benefit Reduced in This Income Range
$200
$150
$100
$50
20
0%
17
5%
15
0%
12
5%
10
0%
75
%
50
%
25
%
0%
$0
Income as a Percent of Poverty
Source: Congressional Research Service based on estimates from the Congressional Budget Office (CBO).
Disregard of Energy Refund Benefit for Other Low-Income Assistance Programs
H.R. 2454 would require that all federal and federal-state income-based assistance programs
disregard energy refund benefits for the purpose of determining either eligibility or benefit
amounts. That is, the energy refund benefit would not result in loss of eligibility or reduced
benefits in programs such as Medicaid, the Children’s Health Insurance Program (CHIP), SNAP,
school lunch, or benefits and services funded under the Temporary Assistance for Needy Families
(TANF) block grant.
Delivery of Benefits
The bill would require the Secretary of HHS to promulgate regulations to allow states to coadminister the Energy Refund Program with the SNAP program. SNAP benefits are provided
through Electronic Benefit Transfers (EBT) cards. EBT is an electronic system used to make
purchases, much like a bank automated teller machine (ATM) card. The EBT card authorizes the
transfer of funds representing a recipient’s benefit from a federal account to a retailer account to
pay for purchases. In the SNAP program, EBT is used in all 50 States, the District of Columbia,
Puerto Rico, and the Virgin Islands.
Congressional Research Service
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Assisting Households with the Costs of a Cap-and-Trade Program
The bill also would allow for alternative delivery of the benefit through direct deposit to an
eligible household’s bank account or other mechanisms approved by the Secretary of HHS.
Administration
Though Energy Refund Program benefits would be determined by federal law and funded by the
federal government, the program would be administered by the states. Theoretically, states would
have the ability to opt-in or opt-out of the program. This is largely patterned after the SNAP
program. Unlike SNAP, however, the program as passed by the House does not provide funding
for state administrative costs.
States would have to meet certain requirements in their administration of the Energy Refund
Program. They would be required to use public employees for all tentative and final eligibility
determinations and use bilingual personnel in those portions of the state where a substantial
number of people in low-income households speak a language other than English. States would
also be required to screen Energy Refund Program applicants to determine whether they are
eligible for three other low-income assistance programs: SNAP, the Children’s Health Insurance
Program (CHIP), and TANF.
Expansion of the EITC
The EITC is a refundable tax credit that supplements the earnings of low-income workers. The
credit is considered refundable because it benefits even those filers who have no federal income
tax liability; these filers receive a check from the federal Treasury.
The EITC began as a temporary program in 1975, and was made permanent in 1978 and
expanded several times since then. 142 In 2006, the total value of the EITC was $44.4 billion,
making it the largest low-income program providing cash, greater than SSI (FY2006 outlays of
$36.2 billion) and far greater than TANF cash welfare (FY2006 expenditures of $9.9 billion).
The EITC was first restricted only to tax filers with children. It was not until 1993 when Congress
amended the tax code to provide an EITC to childless tax filers. The EITC for tax filers without
qualifying children is far smaller than the credit for those with children. It is also available only to
those age 25 to 64. Under current law for 2012, the credit for childless filers is 7.65% of earnings
up to the maximum amount. In contrast, the credit rate for filers with one child is 36% and the
rate for filers with two or more children is 40%.143 The estimated maximum credit under current
law for childless filers in 2012 is $466. All estimates of the credit amount are based on inflation
assumptions from the Congressional Budget Office (CBO) as published in March of 2009.
H.R. 2454 would expand the Earned Income Tax Credit (EITC) for certain tax filers without
qualifying children whom the Secretary of the Treasury determines have “experienced a reduction
in purchasing power” as a result of the American Clean Energy and Security Act (benefits for tax
filers with children would not change). Loss of purchasing power would be calculated in the same
142
CRS Report RL31768, The Earned Income Tax Credit (EITC): An Overview, by (name redacted).
The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) temporarily increased the EITC for filers with
three or more children to 45% for 2009 and 2010 only.
143
Congressional Research Service
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Assisting Households with the Costs of a Cap-and-Trade Program
way as under the Energy Refund Program. The expansion of the EITC proposed in H.R. 2454
would be effective in 2012.
H.R. 2454 would increase the maximum amount of the credit that filers without qualifying
children would receive. It would raise the EITC credit rate for childless filers to 15.3%,
increasing the estimated maximum credit to $932 for 2012. The EITC is phased out for income
over a certain threshold. Under current law, the EITC for childless filers begins to phase out at an
estimated income level of $7,620. H.R. 2454 would raise the income threshold at which the EITC
is estimated to begin to phase out to $11,640. After 2012, this phase-out threshold would be
indexed to inflation.
Figure 4 graphically shows the impact of the proposed EITC changes for childless tax filers who
would lose purchasing power due to H.R. 2454. The bill would increase the maximum credit rate
and the income at which the credit begins to phase out. The effect of these two changes would
result in expanded eligibility, so that such filers with income below an estimated $17,700 would
qualify.
Figure 4. Expansion of the EITC Proposed in H.R. 2454 for Tax Filers Without
Qualifying Children Who Have Experienced a Reduction in Purchasing Power
Estimated for 2012
$1,000
H.R. 2454:
Maximum $932
$900
$800
$700
EITC
$600
Current Law:
Maximum = $466
$500
$400
$300
$200
$100
$
$1 0
,0
0
$2 0
,0
0
$3 0
,0
0
$4 0
,0
0
$5 0
,0
0
$6 0
,0
0
$7 0
,0
0
$8 0
,0
0
$9 0
,0
$1 00
0,
0
$1 00
1,
0
$1 00
2,
0
$1 00
3,
0
$1 00
4,
0
$1 00
5,
0
$1 00
6,
0
$1 00
7,
0
$1 00
8,
0
$1 00
9,
0
$2 00
0,
00
0
$0
Earnings
Source: Congressional Research Service (CRS).
Notes: Estimates are for 2012 based on projected inflation published by the Congressional Budget Office, March
2009.
Congressional Research Service
42
Assisting Households with the Costs of a Cap-and-Trade Program
The EITC for tax filers without qualifying children is available only as an end-of-year refund.
H.R. 2454 would not alter this provision. (The EITC for tax filers with qualifying children is
available on an advance-payable basis, added to paychecks. However, advance payment of the
EITC is rarely used.)
The refundable portion of the EITC is considered an outlay from the federal government. (For
filers where the EITC reduces, but does not eliminate, federal tax liability, that portion of the
EITC is considered a revenue loss.) The CBO estimates that the EITC expansion in H.R. 2454
would increase outlays by $4.4 billion over the five-year period FY2010-FY2014 and by $15.7
billion over the ten-year period FY2010-FY2019.
S. 1733, the Clean Energy Jobs and American Power Act
The Clean Energy Jobs and American Power Act (S. 1733), sponsored by Senators Kerry and
Boxer, was introduced on September 30, 2009. The bill is similar to H.R. 2454 in that it would
distribute allowances to electricity LDCs and natural gas LDCs to assist consumers. However,
unlike H.R. 2454, the bill as introduced in the Senate does not yet specify the amount of
allowances that would be available to LDCs. Also like H.R. 2454, the Clean Energy Jobs and
American Power Act would allocate allowances to states to be used to assist consumers who use
heating oil and propane (unlike the House-passed bill, S. 1733 does not mention kerosene users).
The percentage of allowances that would be allocated to the states to assist heating oil and
propane consumers is not specified in the bill.
S. 1733 would also create a Consumer Rebate Fund in the Treasury to be funded through the
auction of allowances, though the bill does not specify the amount of auction proceeds that would
be used to fund the account. Beginning in 2026, the bill provides that the President use the funds
in the Consumer Rebate account “in accordance with Federal statutory authority to provide relief
to consumers and others affected by” the bill’s enactment. Similarly, S. 1733 would establish an
Energy Refund Program, funded through the auction of allowances, with the proceeds used to
“offset energy cost impacts on low- and moderate-income households.”
Congressional Research Service
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Assisting Households with the Costs of a Cap-and-Trade Program
Appendix. Table of Considerations
Table A-1. Considerations in Distributing Funds to Households Through Various Methods
Direct
Payments
to All
Households
Disbursal
Through
Tax
Systems
Ability to
Reach
Households
Could be
designed to
reach most
households
through
existing
systems such
as Social
Security, the
federal income
tax system, and
state public
benefits
systems.
Administration
Would likely
require the
coordination of
existing
systems. Cost
would depend
on how
benefits were
tailored.
Considerations
CRS-44
Electronic Benefit
Transfers to LowIncome
Households
Allowances to Energy
Distributors
Low Income Home
Energy Assistance
Program
Weatherization
Assistance
Program
Earned
Income Tax
Credit
Could use the
payroll tax
system to
reach those in
Social
Securitycovered
employment,
or could use
the federal
income tax
system to
reach those
who file taxes.
Households that use natural
gas, electricity, heating oil,
and propane to heat their
homes represent more than
96% of all occupied housing
units. But the household
benefits would depend on
how the distributors chose to
return the allowance value to
customers.
LIHEAP benefits are
targeted to assist lowincome households, defined
as those with incomes at or
below 150% of poverty or
75% of state median
income in FY2009.
However, not all who are
eligible have received
benefits.
WAP benefits are
available to those
with incomes at or
below 200% of
poverty or up to
LIHEAP income
limits. Not all
eligible households
have received
weatherization
assistance.
Eligibility for
the EITC
depends on
both earned
income and
number of
qualifying
children. In
2006, 23
million tax
filers received
the EITC.
If eligibility were
based on SNAP
levels—at or below
130% of poverty—
then approximately
18.5 million
households,
representing almost
39 million individuals,
would qualify.
Would use
existing
payroll and/or
income tax
systems.
Distributors have basic
information (e.g., address)
about their consumers and
could deliver benefits using
billing systems. Possibility of
additional state and/or federal
government oversight could
increase administrative costs.
Program currently allows
states to use up to 10% of
funds for administration.
The WAP statute
allows up to 10%
of funds to be
used for
administration
with additional
funds for training
and technical
assistance.
The EITC has
been found to
have
administrative
costs that
range between
1% and 3% of
benefits
claimed.
In the case of SNAP,
which uses the EBT
system, varying
sources estimate that
approximately 16%
or 17% of SNAP
dollars go toward
administrative costs.
However, most of
the costs go toward
determining eligibility.
A majority of those
who would qualify for
EBT payments would
already have been
determined to be
eligible for SNAP.
Assisting Households with the Costs of a Cap-and-Trade Program
Direct
Payments
to All
Households
Disbursal
Through
Tax
Systems
Allowances to Energy
Distributors
Consumer
Flexibility
Households
would have
flexibility in
how they use
funds.
Households
would have
flexibility in
how they use
funds.
Would depend on how the
distributors applied the
allowance value; consumer
flexibility may vary by
location.
Tailoring for
Household Size
and Income
Payments could
be adjusted for
household size
and/or income,
but this would
likely increase
the
administrative
burden.
Additional
information
would likely
have to be
collected to
tailor funds
for household
size or
income
through the
payroll tax
system.
Accounting for
Regional
Differences
Payments could
be adjusted for
regional
differences, but
this would
increase the
administrative
burden.
Promoting
Energy
Efficiency
Not directly
promoted.
Considerations
Source: Prepared by CRS.
CRS-45
Electronic Benefit
Transfers to LowIncome
Households
Weatherization
Assistance
Program
Earned
Income Tax
Credit
Funds must be used for
utility payments,
weatherization or energy
emergencies.
Funds must be
used to
weatherize
dwelling units.
Households
would have
flexibility in
how they use
funds.
Households would
have flexibility in how
they use funds.
Some distributors partner
with social services
organizations to assist lowincome consumers. However,
additional information may
have to be collected to tailor
benefits for household size
and income, increasing the
administrative burden.
States have the discretion
to adjust LIHEAP benefits
based on household size
and income.
Once program
eligibility is
determined, the
amount of WAP
funds used per
household is based
on the condition
of the dwelling
unit and the need
for weatherization
services.
The EITC
varies based
on income and
number of
qualifying
children, but
does not
increase for
more than
two children.
If an EBT rebate were
to have income
guidelines like SNAP,
then benefits could
be tailored based on
family size and
income. Maximum
SNAP benefits vary
with family size, and
are reduced as family
income increases.
Payments
could be
adjusted for
regional
differences,
but this would
increase the
administrative
burden.
Policymakers could distribute
allowance value to energy
suppliers based on regional
differences.
LIHEAP has a statutory
formula that allocates funds
to states based on both the
type of fuel used by lowincome households as well
as the price by fuel type.
WAP uses a
formula that takes
account of energy
consumption and
expenditures in
determining how
funds are allocated
to the states.
Payments
could be
adjusted for
regional
differences,
but this would
increase the
administrative
burden.
Payments could be
adjusted for regional
differences, but this
would increase the
administrative
burden.
Not directly
promoted.
Depends on implementation
and use of allowance value.
Policymakers could require
some value be applied for this
purpose; it would also be
possible to encourage energy
efficiency by tying benefits to
reductions in energy usage.
Subsidizing energy
payments may reduce
incentives to conserve
energy, although the
LIHEAP statute allows
states to use up to 15% of
funds for weatherization
(up to 25% with a waiver
from HHS).
Weatherization
activities may
prevent future
energy usage,
thereby reducing
overall household
energy costs.
Not directly
promoted.
Not directly
promoted.
Low Income Home
Energy Assistance
Program
Assisting Households with the Costs of a Cap-and-Trade Program
Author Contact Information
(name redacted)
Analyst in Environmental Policy
[redacted]@crs.loc.g
ov, 7-....
(name redacted)
Specialist in Housing Policy
[redacted]@crs.loc.gov, 7-....
Acknowledgments
(name redacted), Specialist in Social Legislation, wrote the sections of this report on the Low Income Energy
Refund Program and the expansion of the Earned Income Tax Credit.
Congressional Research Service
46
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