As federal climate legislation goes, West Virginia residents may fare well under the American Clean Energy Security Act that passed out of its first committee May 21.

H.R. 2454, also known as the Waxman-Markey bill, details a cap-and-trade approach to reducing climate warming emissions, among other energy-related measures.

Economists say that any economy-wide program to reduce greenhouse gases, or GHGs, will raise the price of electricity and transportation fuels and, ultimately, goods and services.

But the legislation as drafted may minimize some of those costs.

Allocation, not Auction

To achieve GHG reductions, the bill phases in emissions caps. Electricity and fuel producers and importers are covered beginning in 2012, industrial stationary sources in 2014 and natural gas local distribution companies in 2016.

Covered entities would receive emission "allowances" worth one ton of carbon dioxide each and could trade them.

The cap then ratchets down through 2050.

President Obama previously pledged to auction the allowances and to use the proceeds, some $150 billion over 10 years, to develop clean coal and renewable energy technologies and to offset energy cost increases for low-income families.

Covered industries and others, though, argued that allowances should be given away.

That argument held sway. The current bill auctions 15 percent of the allowances, giving 85 percent to emitters.

That doesn't necessarily mean a windfall for industry, according to Harvard University's Robert Stavins.

"The appropriate characterization of the Waxman-Markey allocation is that 80 percent of the value of allowances goes to consumers and public purposes, and 20 percent to private industry," Stavins wrote of the bill's 2012-50 lifetime.

That's because the legislation in many cases directs recipients' use of allowance value: Allowances given to local electric distribution companies, for example, "shall be used exclusively for the benefit of retail ratepayers."

Devil in the Details

At the national level, economists say, it doesn't matter whether allowances are auctioned or allocated.

Analysis of cap-and-trade regimes shows that the distribution method does not affect the final distribution, which will be worked out in subsequent trading, or the cost to society as a whole.

But it does matter at the level of individual industries, firms and households.

And there, the free allocation of allowances will keep rates down, according to Appalachian Power Environmental Affairs Manager Tim Mallan.

"If indeed we have to buy the allowances ... the only place we've got to get that is from the customers," Mallan said.

Rates will still rise, he said, for the purchase of additional allowances and for technology to reduce emissions.

One difference may play out in where GHG reductions come from: more from new technologies and from shifts to non-fossil energy sources, and less from reductions in demand.

"People would cut back (their use) more under the auction scenario, especially in the long run," said West Virginia University economist Stratford Douglas, speaking specifically of electricity. "In the long run people find ways."

Another Short-Run Reprieve

Through negotiations, the emissions reduction schedule was slowed in the early years -- from a 20 percent reduction from 2005 levels by 2020 to a 17 percent reduction -- while the 2050 goal of 83 percent reductions remained intact.

That change was important, according to U.S. Rep. Alan Mollohan, D-W.Va.

"Taking coal-fired generation offline in so short a period is a very difficult thing from a technological standpoint," Mollohan said. "It's also a very difficult thing from an investment and a marketplace aspect."

Mallan agreed that that change was important, saying, "It gives us a little breathing room."

Still, it's a "very ambitious" timeline that Mallan hopes will be pushed back in coming negotiations.

Next Steps

While Mollohan believes cap and trade is coming, he said this bill still has a long way to go. He gave health care legislation better chances this session.

But many analysts expect to see H.R. 2454 on the House floor over the summer, noting that Obama wants legislation in place before international climate talks in Copenhagen in December.

If cap-and-trade legislation is passed, Mollohan said he believes coal will survive.

"There is no industry that has assimilated successfully more environmental legislation," he said. "Coal will adjust because this legislation will have to accommodate coal."