Cap and trade bill to generate hundreds of billions in revenue

The US Government's proposed cap and trade legislation will create almost $900bn (£560bn) in extra revenue over the next nine years, according to a report from the Congressional Budget Office.

After payroll and tax offsets, the law would generate $253.2bn between 2010 and 2014, and $845.6bn between 2010 and 2019, said the report. Federal spending on emissions reduction would amount to $821.2bn during that decade, which would create a profit of $24.4bn during that time period.

Most of the cash will come from the auctioning and distributing allowances that would be used by companies to offset their carbon emissions, the report suggested. It estimates that the legislation would cover 72 per cent of US greenhouse gas emissions in 2012, rising to 86 per cent in 2020.

The report also estimated that the price of greenhouse gas credits would rise from $15 per tonne in 2011 to $26 in 2919. Allowances for hydrofluorocarbons – which would be traded separately under the proposed legislation – would start at $2 per tonne in 2012, rising to $20 by 2019.

The response to increasing allowance prices would rise substantially over time, as households begin replacing inefficient equipment with devices designed to reduce emissions. "CBO estimates that, in 2015, a price on emissions of CO2 that raised the average price of end-use energy produced from fossil fuels by 10 per cent would induce about a five per cent reduction in such emissions," said the report. "By 2025, a similar increase in price would result in a nine per cent reduction in emissions, with the response continuing to increase over time at a gradually decreasing rate."