Hearings - Statement
Statement of Christopher S. Bond
Hearing: Full Committee hearing entitled, “Legislative Hearing on America’s Climate Security Act of 2007, S. 2191.”
Thursday, November 15, 2007

Madame Chairman, thank you for holding this hearing on the carbon cap and trade bill we are considering. Today, I want to describe how its carbon auctions are unfairly expensive for millions of consumers.

Some may wonder how this bill will cost families and workers up to $1 trillion dollars per year according to one estimate, and at least "hundreds of billions of dollars" according to the bill’s sponsors.

Energy prices will rise because families and workers will pay multiple times for what they pay once for now. Consumers will first pay for higher power production costs from higher natural gas prices. Then they will pay for expensive new carbon controls or alternative energy sources such as wind.

Then, this bill will force them to pay still more for the cost of auctioned carbon allowances. Producers are forced to buy at auction the carbon allowances they need to operate. They will then pass those costs on to consumers. Families and workers will end up paying $50 billion more a year, rising to $150 billion per year by 2030.

Consumers did not suffer this auction surcharge under the successful acid rain cap and trade program. Its SO2 allowances were allocated to generators at no cost. However, environmental groups concerned with how European companies earned windfall profits in its failed carbon trading scheme suggest auctions as the answer.

A report by Clean Air Watch with a forward by the head of the National Wildlife Federation claims that we must institute a multi-billion dollar carbon auction to avoid corporate windfall profits.

That report, as do many environmental groups, insists that no-cost allocations create windfall profits. They cite in their footnotes a CBO study from April, 2007. The CBO study seems to agree - at least until one reads further. Its footnote reveals that an exception to the ability of reap windfall profits is where consumer rates are set by regulators.

What is the meaning of this footnote to a footnote? It admits the reality that windfall profits are prohibited by law in the 36 states with regulated power markets. A state that regulates its power markets caps profits that generators may collect. Additional profits must be refunded back to consumers. Windfall profits are prevented by law.

That means 36 states in the U.S. do not share Europe’s windfall profit problem. And yet, the nationwide carbon auction in this bill will require families and workers in the Midwest, South, and Mountain West to pay billions extra for a problem they did not create.

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