The Shriver Brief : Poverty Law Commentary & Insights : Sargent Shriver National Center on Poverty Law : Affordable Housing, Healthcare Reform

The House passed the monumental American Clean Energy and Security Act (ACES) almost a year ago. Since then, there have been two climate bills introduced in the Senate, the Kerry-Boxer bill and the Cantwell-Collins bill.  And, for several months, everyone awaited the introduction of the tri-partisan Kerry-Lieberman-Graham bill . . . an introduction that would never come to pass. Last week, after Senator Graham (R-SC) dropped his sponsorship, Senators Kerry (D-MA) and Lieberman (I-CT) released a third climate bill in the Senate, the American Power Act. 

The American Power Act, similarly to ACES, would place a cap on carbon emissions, requiring large emitters (over 25,000 tons annually) to have allowances that could be bought and sold, creating a cap-and-trade system.  Among other provisions, the bill sets aside $7 billion annually to improve our transportation infrastructure, provides $2 billion in incentives annually to research and develop “clean coal” technologies, and provides substantial financial incentives to increase nuclear power generation. In the aftermath of the BP oil leak, the Act also grants to states a 37.5 percent share of revenues collected from off-shore drilling in federal waters off their coastlines, giving states the “option” to veto off-shore drilling within 75 miles of their coasts.

The cap on carbon emissions would hopefully begin to curb global warming, but it would also increase energy costs and the costs of energy-intensive goods for American consumers. The Act includes special consumer protection measures aimed at our nation’s poorest, but are they sufficient? Chad Stone, Chief Economist at the Center on Budget and Policy Priorities, believes they are, characterizing the protections as “the soundest approach to protecting low- and moderate-income consumers in a comprehensive energy and climate bill.”

The Act creates the “Energy Refund Program” for families with incomes below 150 percent of the federal poverty level. Each state’s human services agency would administer the program, and benefits would be delivered on the same debit cards currently used to administer food stamps and other benefits. Families who already receive food stamps or SSI would automatically be enrolled in the program. Families with slightly higher incomes, between 150 and 250 percent of the federal poverty level, would be eligible for a refundable credit distributed through the tax system.

Although these special provisions may be enough to protect our nation’s most vulnerable, the American Council for an Energy Efficient Economy (ACEEE) believes that, in terms of consumer protection for the average American, the Act falls far short of the House bill passed last year. 

The bill could be strengthened in many ways, but it may represent the last chance (at least for many years) to pass badly needed comprehensive climate change legislation. Many already doubt the Senate’s ability to pass a bill, but after elections this fall, chances will be even slimmer. We need a climate bill, and we need our Senators to step up to the plate now.
 

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The United States transformed itself into an industrialized nation through the use of cheap, convenient fossil fuels. Now nations like Brazil, China, and India are pulling their countries out of poverty and becoming industrialized in much the same way. Access to cheap energy is generally a good thing: it affords innovation in labor and development, clean water, warm homes, and stable infrastructure.

Furthermore, millions of people living in poverty rely on dangerous solid fuel alternatives when they do not have access to fossil fuels. One third of the global population burns wood, crop waste, and dung to meet their basic human needs. According to the World Health Organization, the use of solid fuel causes 1.6 million excess deaths each year, and is the fourth largest risk for death in developing countries after malnutrition, waterborne diseases, and unsafe sex. It is unconscionable that people have to resort to solid fuel to survive. Although fossil fuel has become the cheapest alternative, we know that unless, as a global community, we reduce our fossil fuel emissions the result will be catastrophic.

In the next forty years, the demand for energy will double as developing countries continue to build industrialized societies, but at the same time we must significantly reduce greenhouse gas emissions. Richard Smalley, the 2005 Nobel Prize-winning physicist, called this the Terawatt Challenge: “Increasing global energy production from roughly 15 terawatts in 2005 to 60 terawatts annually by 2100 in a way that simultaneously confronts the challenges of global warming, poverty alleviation, and resource depletion.” (One terawatt is equal to one billion kilowatts). 

Ending global poverty is a moral imperative. But how do we tell our global neighbors that we want them to pull their citizens out of poverty without the use of fossil fuels? Particularly when we used fossil fuels to develop, and we continue to struggle to wean ourselves from them today. So what is the solution? The fastest way to solve this problem is to close the price gap between clean and dirty energy. Developing and deploying cheap clean energy has the potential to alleviate global poverty on a massive scale, while stabilizing the world’s climate. The real issue is how to catalyze this shift. 

The United States House passed landmark climate change legislation last year that uses a cap and trade model for reducing carbon emissions. The theory behind cap and trade is that as carbon becomes more expensive, certain industries will look for more cost effective alternatives. Thus, clean energy alternatives will naturally emerge as the price of carbon goes up. 

Others argue that in addition to a cap and trade system, the federal government must actively invest money in research and development of clean energy alternatives.  Some climate change experts argue that the revenue from selling carbon permits should be used to invest in clean energy alternatives, while others argue that those revenues should be used to subsidize energy bills for low-income citizens. Ultimately, for climate change legislation to turn the tide on climate change, in a fair way, it must do all three: reduce carbon emissions, encourage the development of new energy technology, and protect low-income families. 

This post was coauthored by Carrie Gilbert.

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Co-authored by Lissa Domoracki and Carrie Gilbert

[Part 2 in the Shriver Center’s series on Climate Change and Low-Income Communities]

The build-up of carbon and other green-house gas emissions in the atmosphere causes climate change. If this build-up continues, it is estimated that the average temperature in the United States could increase by as much as 9 degrees Fahrenheit by the end of this century. The negative effects of climate change are numerous: increased heat waves, increased incidence of heat-related disease and illness, increased risk of floods, droughts, and fires, rising sea levels, etc. With federal climate change legislation on the horizon, many people are talking about cap-and-trade and how it can reduce our carbon emissions. But, what exactly is cap-and-trade? 

Cap-and-trade is a simple story of supply and demand. As of now, there is no limit on carbon emissions. Power plants, refineries, and industrial plants may emit as much carbon as they want without cost. Cap-and-trade changes this, putting a price on the right to emit carbon. 

Under a cap-and-trade system, companies must turn in an allowance for every ton of carbon emitted the previous year. The number of allowances issued determines the level of or the “cap” on carbon emissions. Initially, some allowances are given to companies for free while others are auctioned off. If fewer allowances are issued, either for free or at auction, than tons of carbon currently emitted, companies subject to cap-and-trade will either have to reduce their carbon emissions or obtain more allowances.

Depending on a company’s circumstances, the company may find it more cost-effective either to reduce carbon emissions or to buy emissions allowances. Cap-and-trade systems create an open market where allowances may be bought and sold. For example, Company A may be able to very easily and cheaply reduce its carbon emissions beneath its allotted allowance level while it may be very difficult and expensive for Company B to reduce its carbon emissions at all. In this circumstance, Company A could reduce its carbon emissions enough to be able to sell its excess allowances to Company B on the open market. Regardless, carbon emissions are reduced sufficiently to meet the cap.

Over time, the number of allowances issued will decrease, lowering the cap on carbon emissions. As this happens, the purchase price of an allowance on the open market should increase. To illustrate, let’s go back to Company A and Company B. Both companies have fewer allowances allotted to them than at the onset of the cap-and-trade program, and Company A has already utilized the easy and cheap methods to reduce its carbon emissions. Therefore, if Company A is going to reduce its carbon emissions sufficiently to sell excess allowances, it must undergo more difficult and costly changes than before. In turn, Company A is only willing to sell its allowances at a higher price. Company B has made no changes, previously choosing to buy allowances on the open market.   At some point, the price of allowances on the open market will exceed Company B’s cost to reduce carbon emissions, and like Company A, Company B will make the changes necessary to reduce its carbon emissions.  

For some companies, this may mean closing a plant and shifting production to a plant that emits less carbon, constructing a new plant that emits less carbon, or ceasing operations altogether. Take, for example, the Fisk and Crawford coal-burning power plants located in the working-class Pilsen and Little Village neighborhoods of Chicago. Both of these plants, because of their age, are exempt from the Clean Air Act. As is often the case, low and moderate income people bear the brunt of the pollution from plants like Fisk and Crawford as they tend to be located in or near low and moderate income communities. According to a Harvard School of Public Health report, the air pollution from the Fisk and Crawford plants is linked to 40 deaths, 550 emergency room visits, and 2,800 asthma attacks annually. Under a cap-and-trade system, it will likely become prohibitively expensive to continue the operation of these heavy carbon-emitting plants, benefiting the low and moderate income communities situated near them.

Overall, a cap-and-trade system advances several climate change objectives. First, the cap allows for predetermined and definite carbon emission-level reductions through the issuance of a limited number of allowances.  Second, the trading of allowances provides for the reduction of carbon emissions in the most cost-effective manner by encouraging the implementation of quick and easy carbon emission reduction strategies early on. Third, cap-and-trade will make heavy polluting plants cost prohibitive to continue operating, yielding important health benefits to the low and moderate income people who tend to live near such plans. Fourth, cap-and-trade, properly structured, can accomplish yet another essential policy objective -- the protection of low and moderate income households from bearing the brunt of added consumer costs that will result from limiting carbon emissions through cap-and-trade. More on this subject in a future article in our series on Climate Change and Low-Income Communities.

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