Abstract

The design and implementation of the allocation of CO2 emissions allowances in recent bills in the U.S. Congress introduces a new source of uncertainty to the climate policy debate. We examine the Waxman-Markey bill (H.R. 2454) with scenarios that vary outcomes associated with allocations to electricity local distribution companies, investments in energy efficiency and technology development. The average net household burden in 2016 ranges from $133, with a CO2 allowance price of $13.19, to $418, with an allowance price of $23.41. The uncertainty about average burdens does not carry over to the distribution of those burdens; both scenarios impose the greatest burden as a percentage of income on middle-income households. A third scenario that allocates a substantial portion of allowance value as lump-sum payments imposes an average net household burden of $206, with a price of $17.37 and with highly progressive distributional impacts.