The price of a pollution allowance under Senate climate change legislation should average around $26 during the first years of the emissions trading program, a cost that would add less than a quarter to the price of a gallon of gasoline, according to a new estimate by a market analysis firm.
Point Carbon had earlier projected the price for a metric ton of carbon dioxide equivalent would average around $31, based on media reports and what sources in Congress told the firm about what the legislation would include. But a “hard price collar” in the Senate bill released last week will decrease market price fluctuations, leading Point Carbon to revise its earlier estimate downward to $26 a ton.
Under the bill being promoted by Sens. John Kerry (D-Mass.) and Joseph Lieberman (I-Conn.), utilities and then large manufacturers would be required to hold allowances to cover their emissions. The number of allowances would decrease over time, forcing the companies to reduce their carbon pollution.
The companies could trade those allowances on an open market as needed. Oil refiners would not participate in the trading system but would purchase allowances based on historic sales figures set aside each quarter. The companies would pass those costs onto consumers, resulting in the higher gas costs.
Point Carbon also estimated the total value of the market would reach $350 billion by 2020.