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Public Statements

Letter To The Honorable Barbara Boxer, Chairman, Committee On Environment And Public Works And The Honorable John Kerry, Chairman, Committee On Foreign Relations

Letter

By:
Date:
Location: Washington, D.C.

Grassley warns that pending climate change bills treat Iowa like second-class citizen

Senator Chuck Grassley today made clear that Iowa stands to lose big in the cap and trade proposals that are currently before the Congress. In a letter to Senators John Kerry and Barbara Boxer, Grassley wrote that their bill would be "a transfer of wealth to the East and West coasts at the expense of other regions like the Midwest."

Grassley said areas of the country like the Midwest already will shoulder an unfair burden in the climate change legislation.

"A global approach makes more sense than unilateral action on climate legislation, but if unilateral climate legislation is taken up in Congress it should at least share the economic burden equitably across all states and regions of the country," Grassley said. "It's clear that this highly questionable policy must be changed for the sake of fairness and credibility with the legislation."

According to testimony from the Congressional Budget Office before the Senate Finance Committee, "a cap-and-trade program would lead to higher prices for energy and energy-intensive goods" and "Under a cap-and-trade program, consumers would ultimately bear most of the costs of emission reductions."

To alleviate this tax on consumers, the current proposals involve giving away some free emission allowances so utilities don't have to buy them. Rather than allocate allowances based on need, both the House-passed Waxman-Markey bill and the newly proposed Boxer-Kerry bill use an unusual formula. Under this formula, the West Coast and the East Coast make out exceptionally well while the Midwest, which will need relatively more allowances, will actually get less.

Here is a copy of the text of Grassley's letter to Kerry and Boxer.

October 26, 2009

The Honorable Barbara Boxer, Chairman The Honorable John Kerry, Chairman
Committee on Environment and Public Works Committee on Foreign Relations
410 Dirksen Senate Office Building 446 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510

Dear Senators Boxer and Kerry:

As you know, the global warming legislation moving forward in the Senate will have far reaching economic impacts for all Americans. I question the wisdom of any unilateral U.S. legislation outside of a fair and equitable international agreement given the acknowledgement by EPA Administrator Jackson and other experts that this would have little or no environmental benefit. However, if the Senate is to consider unilateral climate legislation, it should at least share the economic burden equitably across all states and regions of our country.

According to testimony from the Congressional Budget Office before the Senate Finance Committee, "a cap-and-trade program would lead to higher prices for energy and energy-intensive goods" and "Under a cap-and-trade program, consumers would ultimately bear most of the costs of emission reductions." In order to try to alleviate the burden of increased energy costs on American families in the first years of such a program, current proposals involve a system of free allocation of emission allowances for the electricity sector.

These free allowances are intended to offset a portion of the increased energy costs caused by the requirement to purchase allowances. (CBO has also made clear in response to my written questions that, "The value of the allowances created under a cap and trade program would be large, but would inevitably fall short of the total economic effects of the policy---which would include the cost of allowances themselves as well as the losses associated with the reduction in output associated with transitioning to a less carbon-intensive economy.") However, the current formula in the House-passed Waxman-Markey bill and the recently released Boxer-Kerry bill allocates only half of the free allowances based on a particular utility's requirement to purchase emissions allowances and the other half based on retail sales of electricity. In other words, free allowances will be given for electricity generated by means that entail no requirement for emissions allowances and therefore no increased costs.

It is important for Members of Congress to recognize that since a cap-and-trade system inevitably involves increased costs for American consumers, it is in effect a national energy tax and emissions allowances represent a portion, but not all of the cost of this tax to the American people. Therefore, most, if not all, of the revenue generated by this tax in the form of emissions allowances should be given back to the American people in proportion to what they were forced to pay in the first place.

The current provision that allocates a large portion of allowances to utilities regardless of a utility's actual compliance obligation is in effect a transfer of wealth to the East and West coasts at the expense of other regions, like the Midwest, which will already be shouldering a larger share of the burden under the proposed system. Surely you can recognize that this provision will be unacceptable to senators on both sides of the aisle that represent regions on the losing end of this highly questionable policy and it must be changed for the sake of fairness and credibility.

Sincerely,

Charles E. Grassley
United States Senator

cc Senator Reid


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