One of the inevitabilities of putting a price on carbon is that it will make energy more expensive. The more carbon intensive an energy source, the greater the increase in cost. Of course, the aim of climate change legislation is to ensure a change from more-carbon-intensive energy to less-carbon-intensive energy. The cap-and-trade provisions of the House bill effectively put a price on carbon. The cost of carbon allowances into the future is highly uncertain.
One of the major uncertainties is the timing, cost and public acceptance of low- and no-carbon technologies such as nuclear, renewables and carbon capture and storage for coal-fired power plants. If there are delays due to technology readiness, permitting issues, or lack of trained manpower, or increased costs due to the sort of commodity cost inflation that has been experienced in recent years, then carbon emission reductions may not occur as expected and carbon prices may increase substantially.
To try and prevent this from happening, the House bill allows businesses to use a limited number of carbon 'offsets' instead of having to purchase carbon allowances. These carbon offsets are generated by businesses whose emissions are not regulated – either because their emissions are already lower than the regulatory threshold or they are outside of the scope of cap-and-trade legislation – but who might make good improvements in their emissions. If they can show they’ve made such improvements, these businesses can sell their offsets to businesses that need them. Offsets also can be generated by businesses that make emissions improvements but that operate in industries or countries where emissions aren’t regulated.
There is significant uncertainty about the technical, economic and market availability of offsets. Furthermore, their future use depends on regulatory decisions that are yet to be made by governments, as well as on the timing and scope of negotiations on international agreements or arrangements between the United States and countries where offset opportunities may exist.
In its recent report, the Energy Information Agency (the data arm of the U.S. government’s Department of Energy) took these uncertainties surrounding technology and offsets into account when modeling six main scenarios. The results showed an increase in average annual household energy expenditures ranging from $289 to $1,916 (in today’s money) in 2030 when the full impact of the proposed House bill is felt. Other reports, which have assumed that new technologies will be implemented and that the full amount of allowable offsets will be available without any constraints, have arrived at figures as low as $150 per household per year in 2030.