Under Pending Climate Bill, Handful of States Could be Biggest Winners

As the debate over the pending climate and energy bill heats up, one criticism of the legislation that has been levied extensively by Republicans and politicians from Southern and Western states is that the bill will transfer wealth from rural areas to more urban areas, or from the heartland to the coasts. For example, Michele Bachmann, Representative from Minnesota, has put on her website an attack on the bill, including for the reason that it “transfers wealth from rural areas to cities. States like California, Washington, and New Jersey would receive more emission credits than they need, enabling them to sell surplus credits to smaller facilities in states like Ohio that receive maybe half of the credits they need – making the rich, richer, and the poor, poorer.”
And conversely, New Jersey politicians—including three of its five GOP members—supported the bill because they believe that New Jersey will one of 10 states benefiting from it—possibly to the tune of $104 million. The other nine states sharing in the largess are also mostly coastal states: on the West Coast: CA, OR, WA, ID; on the East Coast: NY, CT, RI, VT; and in the center, just one state: SD.

The source of these estimates is a map that has been circulated widely, including through Congress, which shows financial winners and losers among the states under the bill (see below).

The controversial map created by the National Mining Association, a coal industry lobbying group.

The map purports to show which states will have to pay more for their electricity and which will be eligible to receive a windfall by selling their carbon credits. The map has been the subject of its own controversy; it was finally traced back to the coal industry group the National Mining Association by The Hill.  As the highest-emitting business sector in the nation, the coal industry has an obvious incentive to present information that might raise opposition to the bill in Congress, whether that information is fully true or not.  In addition, a blog on the National Resources Defense Council’s (NRDC) website found that, in a late version of PowerPoint document that contains the map included a footnote that acknowledged the incompleteness and resulting inaccuracy of the numbers on the map, which begins, “These rough calculations DO NOT represent a precise indicator of the actual allocation of allowances to electricity distribution companies under sections 782 and 783 of the ACES legislation (5-29-2009 version).”  For a more complete and accurate picture of the costs associated with the climate bill, the NRDC ‘s blog pointed to a different map, created by utility consulting firm MJ Bradley and Associates (see below).

A map of added electricity costs per state under the Waxman-Markey bill created by consultants MJ Bradley and Associates.

However, even though the statistics presented in the original map may be highly questionable, GOP and rural politicians’ concerns should not be simply dismissed. There is considerable logic behind the idea that some states, including NY, NJ, and CT, will benefit under the bill while many others will suffer.

The states that may benefit have several things in common:
1)    They tend to have a history of higher clean air standards than many other states. CA and NJ, for example, have long been leaders in setting higher anti-pollution standards. Since many of these states have already gone beyond federal mandates or what other states have done in restricting emissions and pollutions by their industry and power utilities, it makes sense that they’d be “under emitting” and have emissions credits to sell.
2)    These are not states that have coal-fired power plants. Much of their energy, in fact, comes from non-coal sources—the West Coast, Idaho, and South Dakota generate much of the nation’s hydroelectric energy, and the Northeast has most of the country’s oil-fired electrical plants. Since coal emits the most carbon of all the power sources used for electricity, it stands to reason that states that burn coal will have to pay more for allowances, while states that don’t may have allowances to sell.
3)    Also, most of the states that may win under the bill are already paying more than the national average for electricity. This is because their usage of non-coal power sources and/or their higher clean air standards have already “baked in” the cost of cleaner electricity. Many of the states thought to lose the most are those that have historically paid very low monetary prices for electricity—though they may have paid more in pollution and health-related issues.

Often, trading results in producing more wealth overall—“making the pie higher,” as George W. Bush supposedly said. That’s the fundamental principal behind capitalism. Other times, however, trading simply redistributes wealth from one party to another. That particularly happens when a situation is a “zero-sum game”—that is, when there is a fixed (or relatively fixed) quantity of something, and while it can be traded back-and-forth, it can’t be grown.That is essentially the situation with the cap-and-trade system in the American Clean Energy and Security Act: a fixed number of carbon credits or pollution allowances will be distributed, and those who have allowances excess to their need can sell to those who have needs excess to their allotment.

However, lest anyone in NY, NJ, CT, etc. feel bad about this situation—just as there’s nothing wrong with Southern , Midwestern, or Western politicians advocating against a bill that may hurt their constituents, there’s nothing wrong with people living on the West Coast or in the Northeast supporting a bill that may help them. Fair, after all, is fair.