The recession currently gripping the United States economy is the culmination of nearly a decade of poor job growth, stagnant wages, and growing inequality that has squeezed middle-class households across the country. An economy overly reliant on the profits of the financial services sector and driven by resource-intensive industries saw real median household income decline by 0.6 percent between 2000 and 2007 and the poverty rate increase by 1.2 percent. The percentage of GDP belonging to wages and salaries in 2006 was never lower. Middle-class Americans' standard of living is further threatened by human-caused climate change, which will result in more disease, heat-related death, extreme weather, and economic disruption if left unchecked.
The American Clean Energy and Security Act, which the House passed today, is a significant shift of government investment away from an unsustainable economy and environment that have not worked for middle-class families to ones that will be based on sustainable, equitable growth and good jobs. The Act will reduce the economy's reliance on dirty fuels while for the first time making polluters pay the true cost of their emissions.
The legislation establishes a market-based cap-and-trade system to limit emissions of greenhouse gases, such as carbon dioxide. The program sets a declining upper limit on nationwide emissions and then issues allowances, which are rights to emit a particular amount of greenhouse pollutants. Most of the allowances would be issued to emitters for free in 2012, while the remainder would be sold at auction. Over time, the percentage of allowances auctioned off would increase until most are distributed by auction.
The Act uses the allowances and proceeds from their sale to moderate the potential negative effects of the emissions cap on workers and emitters and to encourage energy efficiency. Funds are, in part, directed to protect consumers (particularly low-income households) and carbon-intensive manufacturers and to states for clean energy and energy-efficiency projects. Investments in clean energy and energy efficiency total over $190 billion through 2025 and a renewable electricity standard requires 20% of electricity to be generated through renewable energy and energy efficiency by 2020.
Along with clean-energy investments made in the stimulus package passed earlier this year, the American Clean Energy and Security Act will create approximately 1.7 million jobs, reducing the unemployment rate by about a percentage point. Further investment in clean energy would create even more jobs: the American Solar Energy Society estimates that aggressive investment in energy efficiency will result in the creation of 37 million new jobs by 2030. The Act's renewable electricity standard alone would generate an estimated 185,000 new jobs by 2020.
But middle-class households are in need not only of lots of jobs, but of lots of good jobs, ones that offer solid wages, access to health care, vacation, and paid sick days. Significantly, the "green jobs" created by the American Clean Energy and Security Act are concentrated in the middle portion of the wage distribution (they are neither particularly high-, nor particularly low-paying), they are unionized at a higher rate, and they are clustered in the manufacturing and construction trades, two industries with high unionization rates that have experienced severe job loss in recent years. These are all characteristics of jobs that enable households to achieve a middle-class standard of living.
The Act begins the transformation to a sustainable economy that works for middle-class Americans responsibly by ensuring that most lower- and moderate-income families do not experience any hardship from the cap-and-trade program. The nonpartisan Congressional Budget Office finds that the annual cost of the cap-and-trade program in 2020 would be $175 per household, while households in the lowest income quintile (the lowest 20 percent of earners) would receive a net benefit of $40 from the program because of energy tax rebates. In fact, when the benefits of energy-efficiency provisions are included in the calculation of the legislation's cost to each household - the Act would decrease household spending on utility bills by 7% - the Environmental Protection Agency finds that the average household would gain $80 to $100 per year.
Sill, the American Clean Energy and Security Act is not as ambitious as many had hoped. The Intergovernmental Panel on Climate Changes reckons that emissions should be reduced between 25 and 40 percent below their 1990 levels by 2020 in order to stabilize concentrations of GHGs and prevent the worst of environmental consequences. The entirety of the legislation only achieves, at best, a 23 percent reduction in emissions by 2020 and the cap-and-trade program alone will only achieve a 1 percent reduction from 1990 levels by 2020. Other estimates of the legislation's emissions reductions, such as that of Greenpeace, are much lower. Still, the 17 percent reduction required by the Act is equivalent to removing 500 million cars from the road, a significant achievement.
The effectiveness of the legislation will depend in part on determinations of what emissions-reducing projects qualify as offsets. Authority to make this determination was delegated during 11th-hour negotiations to the Department of Agriculture, rather than to the EPA which has the institutional experience and capacity to make scientific decisions about emissions and qualifications for offsets. The Department of Agriculture will likely be too willing to classify projects with questionable emissions reductions as offsets because many of these projects will be undertaken by rural interests. Finally, the legislation allocates funds for programs of dubious worth such as "clean coal" whose merit as energy-efficient technologies has not been proven.
The American Clean Energy and Security Act's creation of a cap-and-trade market provides the federal government with vast resources to invest in a labor-intensive, energy-efficient, green economy. But, like many government programs, the cap-and-trade program will be susceptible to the influence of powerful interests, whose manipulation is already apparent in the legislation's concessions to polluters. Indeed, the Act allocates vast sums to the very industries whose unwillingness to invest in energy efficiency has contributed greatly to global warming. Ceaseless oversight will be necessary to ensure that the American Clean Energy and Security Act really does transform the United States economy so that it strengthens and expands the middle class.