Carbon Costs Under Obama Cap-and-Trade

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Gasoline prices would rise 12 cents during the first year of a U.S.-wide carbon cap-and-trade system based on President Barack Obama’s budget proposal, according to research firm Point Carbon.

Carbon allowances, representing 1 tonne of carbon dioxide equivalent, would trade at a price of $13.70 during the first year, Point Carbon estimates. With the limit, or cap, on emissions declining about 2 percent per year after 2012, Point Carbon estimates the price of carbon in 2020 would rise to $16.50 per allowance, translating into an additional 15 cents per gallon of gasoline.

President Obama’s 2010 budget proposal delivered to Congress last week assumed that a nationwide cap on carbon emissions would be in place by 2012 that would reduce emissions by 14 percent below 2005 levels by 2020 and by 83 percent below 2005 levels by 2050. Under the system, companies could buy and sell the right to emit, with the price of that right set by a marketplace for the allowances. President Obama and leading Democrats in Congress have said they want to begin working on a climate bill this year that would create such a system.

Point Carbon made the calculations assuming that 80 percent of the U.S. economy would be placed under a cap on greenhouse gas emissions at 2005 levels, roughly 5.8 billion tonnes of carbon dioxide equivalent.

The research firm also estimates that by 2020 average retail electricity rates would increase by nearly 7 percent as a result of the cap-and-trade system.

Currently, the largest greenhouse gas trading program in the world in the European Union Emission Trading Scheme.