Cap and Trade Fact Sheet #1

Issues: Cap and Trade

New EPA Analysis Says Midwestern Electricity Consumers Lose Under Cap & Trade Bill

The latest update on the costs of the House cap and trade bill (H.R. 2454) comes from the Environmental Protection Agency (EPA). In response to a request by U.S. Senator Russ Feingold (D-WI), EPA has released a new analysis that indicates Midwestern power companies would lose under H.R. 2454. This new analysis, which was highlighted in a news report from Climate Wire, suggests that a cap and trade regime unfairly favors coastal states over Midwestern states because of the Midwest's heavy reliance on coal plants. Ultimately, it means that electricity rates in these states will skyrocket under cap and trade.

Consider the following:

  • According to the analysis, California has 87 million tons of annual emissions. If allocations for carbon allowances are given based on 100% emissions, it would receive allocations for 70 million tons. Under H.R. 2454, the formula would give California 99 million tons of emissions. This means there would be a net benefit for California utility companies based on the formula for allocations in H.R. 2454.
  • Conversely, in Wisconsin, which has 55 million tons of annual emissions, allocations allowed based on 100% emissions would be 44 million tons. Under H.R. 2454, the formula would allow Wisconsin to receive only 39 million tons. This means that Wisconsin utility companies would be short allowances by 5 million tons. Those utility companies would have to either buy allowances from some source like utility companies in California, which have extra allowances, or pay a fine.
  • In essence, this study highlights that there are winners and losers with a cap-and-trade regime. And, among the losers are power utility companies in Midwestern states and their rate payers.

In the news report, a representative from Alliant Energy, a Wisconsin-based utility, is quoted as saying "the EPA document just confirms the formula will disadvantage Midwest states for decades to come while the coast states will hit a 'federal jackpot' every year over the life of the new program."

The report is timely as the U.S. Senate prepares to debate this issue. Last month, Sen. Barbara Boxer (D-CA) and Sen. John Kerry (D-MA) released a Senate version of cap and trade legislation and there are few details regarding allocation of carbon allowances. The Senate Environment and Public Works Committee is expected to hold hearings on the bill later this month with a markup planned for November.