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THE REBATE MYTH
September 29, 2009

Posted by Matt Dempsey matt_dempsey@epw.senate.gov

EPW POLICY BEAT: THE REBATE MYTH

"I have been around the block a few times. People are not going to get that refund. It is not going to hit them. People are going to be unemployed and they are not going to have any recourse whatsoever. The Government will have failed them again." Harry Alford before the Senate Environment and Public Works Commitee, July 16, 2009

 

The whole point of cap-and-trade is to raise the cost of energy-specifically, energy produced from fossil fuels. Environmentalists know this, so they try mightily to change the subject. They say cap-and-trade is not a tax, principally because in Waxman-Markey, consumers get "rebates." Yet, under a careful reading of the bill, this is misleading: middle income consumers may or may not get checks from their local utility-in short, nothing in the bill guarantees that they do.

When Republicans recently pounced on Treasury Department estimates-released only after a freedom of information act request-showing President Obama's cap-and-trade program would cost $1,761 per household (and later, $3,522 per household-a number discovered only after Treasury bowed to pressure and removed redactions in their documents, showing cap-and-trade could cost nearly $400 billion per year) environmentalists cried foul. They argued that, among other things, "allowance revenues" from Waxman-Markey would be used to offset this cost. "The bottom line," according to Stephen Seidel of the Pew Center, "is that it goes back to the consumers."

"Goes back to consumers"; what does this mean? For one, it does not mean that middle-income consumers will necessarily get a rebate check from their local distribution company, or LDC, to offset higher electricity bills caused by cap-and-trade. In reading through Section 782 of the bill, one finds that emission allowances "distributed to an electricity local distribution company shall be used exclusively for the benefit of retail ratepayers" [emphasis added]. So far, so good. But again, what does this mean?

Reading further, one finds this: "To the extent an electricity local distribution company uses the value of emission allowances distributed under this subsection to provide rebates, it shall, to the maximum extent practicable, provide such rebates with regard to the fixed portion of ratepayers' bills or as a fixed credit or rebate on electricity bills." To the extent it provides rebates? This language is largely hortatory; nothing here requires LDCs to cut a check. And there's no such requirement in the remaining provisions of Section 782 covering "industrial ratepayers," "guidelines," and "regulatory proceedings."

One must remember, too, that Waxman-Markey addresses electricity rebates, and "to the extent" they are provided, consumers will still face pain at the pump. Nothing in Waxman-Markey offsets these costs. "Transportation costs, however, do increase significantly on a per-household basis," according to the Energy Information Administration, "since there are no provisions designed to dampen motor gasoline price impacts." According to EIA, Waxman-Markey will increase gasoline prices by 20 cents per gallon in 2020 and 35 cents a gallon by 2030. The National Black Chamber of Commerce found that "businesses and consumers would face higher energy and transportation costs under [Waxman-Markey], which would lead to increased costs of other goods and services throughout the economy. As the costs of goods and services rise, household disposable income and household consumption would fall."

During a hearing in the Senate Environment and Public Works hearing, Harry Alford, President of the National Black Chamber of Commerce, was asked about rebates in Waxman-Markey. He responded this way: "I have been around the block a few times. People are not going to get that refund. It is not going to hit them. People are going to be unemployed and they are not going to have any recourse whatsoever. The Government will have failed them again."





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