The Real Cost of Cap & Trade Lundberg Survey examines affect of climate legislation on retail gas prices
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CAMARILLO, Calif. -- If the American Clean Energy & Security Act (ACES)—known as the "Cap & Trade" bill—or other climate legislation becomes law, what would it do to the retail price of gasoline? This report, compiled by the Lundberg Survey and provided to CSP Daily News, finds that the price impact would be rather modest initially, maybe 30 cents per gallon more than without the program. But under such a scheme, the U.S. petroleum industry would "wither," as would the general economy, it said. Barely a decade from now, U.S.-produced gasoline would have less than half the total gasoline pool.
Most American motorists said that they would not pay 50 cents per gallon more, and about half would not pay one penny more, to reduce greenhouse gas emissions, said Lundberg, citing polls by the National Center for Public Policy Research. Refiners are warning that if greenhouse gas emissions are capped and a permit trading system is put into place, domestic capacity and associated jobs would flee overseas. Analysts affirm that with Cap & Trade, energy costs and prices "must skyrocket," said Lundberg.
The U.S. House recently passed ACES, which is waiting to be picked up in the Senate, where it is expected to have a tougher time. (Click here for previous CSP Daily News coverage.)
Lundberg's report, "Early Estimates, Under a 'Cap & Trade' Law: The Gasoline Price Impact of Carbon Permits," presents early quantifications of how carbon dioxide (CO2) emissions permits would affect the price of gasoline. Its five scenarios run from a 1.1-cent-pergallon added gasoline cost to 155.5 cents per gallon.
Price increases would hurt demand. The whole downstream side of the oil business—refiners, wholesalers, transporters and retailers—would, by design, suffer negative impacts on their sales. Consumers care a great deal about the price of gasoline and how it might be affected by the climate bill. The penalty in cents per gallon is more understandable to motorists than when stated in dollars per CO2 ton.
Upstream and downstream public relations would be damaged, added Lundberg. "Any retail price hike fans the flames of vigilante blowhards, official and private, accusing anybody, from the smallest retailer to the biggest oil company, of 'gouging'," said the report.
Lundberg produced several cost hike scenarios, based on calculations of various prices of CO2 emissions permits, from tiny to dramatic. Of course, the future price of permits under any such system cannot be known.
Its research indicates that the added cost, compared to gasoline cost without a climate bill, would likely be in the 18-cents-to-71-cents-per-gallon range under a climate law similar to what the House just passed. The U.S. Environmental Protection Agency (EPA) estimated that carbon permits would cost $13 to $26 by 2015, which translates to a 12-cents-to-23-cents-per-gallon gasoline price hike.
In the European Union, carbon permits have averaged about $30 each since carbon permit trading started there in 2005. That would equal an additional 27 cents per gallon of gasoline. If that 27 cents were reality today, the retail price would be short of $3 gallon. A $50 permit price would put the gasoline cost hike at 45 cents per gallon.
The cost of a carbon permit added to gasoline could be miniscule, such as the 1 cent per gallon at the $1.20-per-permit level that was recently offered on the Chicago Climate Exchange. That price, and a $5 permit price, are considered unrealistically low by most analysts. At the other extreme, the added cost hike to gasoline could also be as lofty as 155.5 cents, with a permit cost of $174.
The report includes an interview with Bill Holbrook, communications director of the National Petrochemical & Refiners Association (NPRA) regarding the House bill and the climate bill of Senators Joseph Lieberman (I-Conn.) and John Warner (R-Va.). It also includes the testimony of Steve Cousins, vice president of Lion Oil Co., El Dorado, Ark., before the House Energy & Commerce Committee's Subcommittee on Energy & the Environment Hearing on Allowance Allocation Policies in Climate Legislation: Assisting Consumers, Investing in a Clean Energy Future & Adapting to Climate Change, June 9, 2009.
Click here to request the free full version of the July 9, 2009, Lundberg Letter on Cap & Trade.
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Price increases would hurt demand. The whole downstream side of the oil business—refiners, wholesalers, transporters and retailers—would, by design, suffer negative impacts on their sales. Consumers care a great deal about the price of gasoline and how it might be affected by the climate bill. The penalty in cents per gallon is more understandable to motorists than when stated in dollars per CO2 ton.