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EIA: Energy Prices Inch Up in Early Years of Cap-and-Trade

The Energy Information Administration threw its hat into the climate bill analysis ring this week -- adding to the list of studies that have tried to determine what cap-and-trade legislation will cost for the average U.S. household. What they found was similar to other recent reports: price increases will inch up modestly in the early years and could rise more steeply as free emissions allowances to utilities are phased out between 2025 and 2030.

The House-passed climate legislation, known as the American Clean Energy and Security Act or the Waxman-Markey bill, mandates a 17 percent reduction in greenhouse gas emissions by 2020 and an 83 percent reduction by 2050 compared to 2005 levels.

The EIA, the research arm of the Department of Energy, focused on six possible scenarios in its report -- with varying degrees of technology, regulation and availability of offsets -- and provided cost estimates for each.

The EIA report certainly not the only one out there. The nonpartisan Congressional Budget Office and the Environmental Protection Agency have released reports in the past few months. Opponents to the climate bill have projected costs much higher than any of these reports.

Increases in electricity rates will be fairly benign at first, with a 3 percent to 4 percent rise by 2020, according to the EIA report. By 2030, electricity rates for the average household could reach 12 cents per kilowatt-hour -- a 20 percent increase from EIA's 2009 numbers.

The study also tackles the likely affects of rising energy prices: less use and slowing economic activity. The EIA estimates household consumption would fall between $26 and $362 a year by 2020.

Economic activity also is expected to decline as energy prices rise, the study found. U.S. gross domestic product could fall between 0.3 percent 0.9 percent from 2012 to 2030.

The EIA report does not examine all of the provisions contained within ACESA. There are a multitude of variables that could alter the cost. For example, the study does not measure the affects of a Clean Energy Deployment Administration, a new agency formed through a provision in ACESA that would issue loans to technologies that reduce carbon dioxide emissions. The EIA study said the creation of CEDA may have the most significant potential to alter the reported results.

EIA estimates are exactly that, estimates. And uncertainties remain, making it nearly impossible to project future costs.

Here's what we do know. The climate bill has little affect on our every day lives in those early years thanks to all of the emissions allowances provided to utilities and other energy providers. By 2030, the costs could be much higher. It's in those two decades -- years that could hold any number of technological breakthroughs -- where the estimates get a little fuzzy.

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Image from Flickr user Joshua Davis, CC 2.0