EPA Releases Economic Analysis of American Power Act

Sens. John Kerry (D-Mass) and Joe Lieberman (I-Conn.) on Tuesday released the Environmental Protection Agency’s (EPA’s) economic analysis of their American Power Act (APA), a bill that would establish a multi-sector cap-and-trade program. The analysis finds that the bill would keep allowance prices low while keeping household costs to a minimum.

The analysis suggested that modeled impacts of the APA were very similar to those of the H.R. 2454, also known as the Waxman-Markey bill, legislation that passed in the House last June. In particular, the estimated allowance prices under the two bills differed on the order of 0–1%. Both bills also allow for 2 billion tons of offsets each year, and both contain provisions to prevent emissions leakage and to address competitive concerns.

“The Cost Containment Reserve provisions of the APA provide a greater level of price certainty than do provisions in H.R. 2454’s Strategic Reserve Allowance Program by, among other things, allocating a greater share of allowances to the reserve,” the EPA said. “This higher level of price certainty comes at a slightly higher cost to the APA over H.R. 2454.”

Allowance prices under both the APA and under H.R. 2454 were projected to be $16 to $17 per metric ton CO2 equivalent (tCO2 e) in 2013 and $23 to $24/ tCO2 e in 2020 in the core APA scenario.

According to the EPA, the APA still has a relatively modest impact on U.S. consumers. Despite the expected decrease in electricity consumption over the no-policy case, average household consumption is still expected to rise over the period of analysis: The average consumption growth rate from 2010 to 2030 under the core scenario is expected to be between 2.5% and 2.8%.

“The net present value of the annual household consumption loss averages $79 to $146 for each year,” the EPA said, adding that costs include effects of higher energy prices, price changes for other goods and services, impacts on wages and returns to capital. Cost estimates also reflect the value of some of the emissions allowances returned to households, which offsets much of the APA’s effect on household consumption.
 
Source: EPA