After receiving broad support in the House Energy and Commerce Committee, the ACES bill is now expected to be brought to a vote before the July recess. While several committees are still looking to review and possibly amend the bill over the next several weeks, the 932 page document is likely to reach the floor largely in tact, leaving the Senate to address any substantive changes still needed in their own climate bill.  

With a fairly comprehensive summary of the current ACES bill now available on the web, I thought it might be useful to try to answer a Top 5 list of questions that still seem to be circulating about the bill. So here we go:

Question 1: Why are we dealing with climate now?

While many people see the ACES bill as simply a climate bill, it could also be considered an economic stimulus bill, an energy bill, and a national security bill as well.  

In addition to capping and slowly ratcheting down our carbon emissions, the bill is also designed to 1) create economic incentives to accelerate investments in clean technologies and grow millions of new clean energy jobs, 2) enhance America's energy independence by reducing our dependence on foreign oil, and 3) limit the significant political and military costs of inaction on climate change.  

The interplay between climate and the economy today no longer makes this an issue of choosing one over the other. The transition to a low carbon economy will require trillions of dollars of investment and the hard work of millions of Americans, ingredients for a healthy economy and a healthy planet.  

Question 2: Why are we "giving away" the majority of the allowance value to industry?

While opponents suggest that the ACES bill "gives away" 75-80% of the allowances to private industry and the rest to consumer rebates, they actually have their numbers backwards. As Robert Stavins at Harvard University has recently noted, over the life of the program the totals actually work out to 80% for consumers and public purposes (shown in green on the graph below) and 20% for industry (shown in grey):

Stavins concludes that "this split is roughly consistent with the recommendations of independent economic research" as to the optimal allocations of the allowances.

Further when you consider that the vast majority of revenues that benefit industry go to performance based incentives to develop low carbon technologies, it seems clear that these revenues will also benefit consumers over time by creating new high paying jobs and buying down the long term costs of the program. 

Question 3: Why do some groups still maintain that passing cap and trade legislation will cost American families up to thirty times as much as the governments own estimates?

My colleague Laurie Johnson and I have written extensively about how the Heritage Foundation, CRA, and others have ignored the governments own assessment of the costs of the program and used every ill conceived parlor trick they can think of to inflate the costs of climate legislation.

The Heritage Foundation clearly stands out for not only failing to model the contents of the bill, but assuming that 1) all of the allowance value disappears instead of being spent on consumer relief, clean energy, adaptation, and other measures; 2) no cost containment provisions such as banking, the strategic reserve, and offsets are included; 3) there are no costs of inaction, and 4) no complementary policies promoting energy efficiency and clean energy are allowed. Only by ignoring these critical questions is the Heritage Foundation able to conclude that the ACES bill is expected to reduce GDP by nearly thirty times as much as the governments own cost estimates.

While CRA uses much of the same hocus pocus to inflate the costs of the program to consumers, they actually assumed the revenues from the program would be spent for some purpose and conclude that cap and trade will actually have a negligible impact on the countries GDP over the next two decades. How negligible? Well instead of GDP growing by 72.26% between now and 2030 without a cap, CRA calculates that US GDP will instead grow by 72.06%. A difference of 0.2% over nearly twenty years that is so small it undermines all of their "dire predictions" with respect to employment, household purchasing power, and energy costs.

Question 4: Won't creating a carbon trading market make energy price volatility rise even further?

In addition to providing meaningful guidelines for the carbon trading markets, the ACES bill should actually be commended for attempting to close many of the regulatory loopholes used by speculators to manipulate energy prices in the US.

Under the ACES bill, Congress would not only require the regulatory authority to establish uniform position limits, reporting requirements, and comprehensive market oversight provisions for the carbon markets, it would require the oil, natural gas, coal, and electricity markets to follow suit.

These requirements are not only expected to greatly reduce unwanted volatility in the carbon markets but dramatically improve transparency and reduce excess speculation in other US energy markets as well.

Question 5: Why are complementary standards important as part of a climate bill?

Complementary standards are seen as a critical way to meet our long term objectives with respect to greenhouse gas emissions. From cleaner cars to more efficient buildings and appliances to lower carbon coal-fire power plants, complementary standards are expected to significantly lower emissions and over time save consumers billions of dollars.

As an example, President Obama has just announced that domestic auto companies must meet a target of a 35.5 mpg corporate average fuel economy (CAFÉ) standard by the year 2016. An aggressive target that the domestic auto companies would struggle to meet without the re-tooling incentives ($20bln) and loan guarantees ($25bln) provided under the ACES bill.

With the funding needed to meet President Obama's targets, the Union of Concerned Scientists estimates that US consumption of oil would fall by 1.4 million barrels of oil per day, saving US consumers $30-70bln* a year by the year 2020.

These estimates do not even include the impact this will have on global oil prices from the drop in demand or the reduction in domestic carbon prices from reducing our emissions by an estimated 230 million metric tons (roughly equivalent to 4% of the cap in 2020).

*assumes gas prices of $2.25 to $4 per gallon in the year 2020