U.S. Senators Could Propose Cap-and-Refunds

Even as the health care bill grabs headlines, details are beginning to emerge about a new energy and climate bill being pieced together in Washington by trio of U.S. senators. According to Energy Washington, an eight-page outline of the bill includes provisions for something called a “cap-and-refund” approach to reducing carbon dioxide emissions.

That’s a alternative to the “cap-and-trade” system proposed in a climate and energy bill that pass the House last June. The Senate version of the bill has gone nowhere, prompting John Kerry (D-MA), Joseph Lieberman (I-CT) and Lindsey Graham (R-SC) to work on a new approach. The cap-and-trade system has been effectively branded as an energy tax by those who oppose it. But a cap-and-refund approach might be more appealing. Under such a system, utilities and other emitters would buy allowances for emitting carbon dioxide, with the number of allowances capped to ensure emissions will be gradually reduced over time. Then the proceeds would be mailed out to Americans in the form of refund checks. (It’s a system featured in legislation already proposed by Senators Maria Cantwell (D-WA) and Susan Collins (R-ME)).

It’s likely that not all of the proceeds will go directly back to the people. As much as half could be directed to fund energy research and other government programs.

Both cap-and-trade and cap-and-refund systems can be market-based, allowing emitters to trade allowances and offering them flexibility to cut emissions in whatever way is cheapest. Economists such as Robert Stavins, at Harvard University, say that such market-based systems would be cheaper than renewable energy mandates, which restrict emitters to using renewable energy such as wind and solar when other technologies could be cheaper (such as capturing and storing carbon dioxide).

The Senators haven’t formally proposed the bill yet, but it there have been indications it could be unveiled by April 15th.