The Volokh Conspiracy - Is Climate Legislation a "Bill for Raising Revenue"?

This week the Senate is debating S.3036, the Lieberman-Warner Climate Security Act. A key feature of the bill is the creation of a cap-and-trade system for carbon dioxide emissions. Basically, the government will cap aggregate carbon dioxide emissions and allocate tradeable emission credits (or "allowances") to firms. The point of such a regime is to reduce the cost of emissions control by encouraging the greatest reductions from those firms that can reduce their emissions at lowest cost. Assuming the transaction costs of the trading regime are relatively low, firms with comparatively high emission control costs could purchase credits from firms with comparatively lower control costs.

A key issue in setting up any cap-and-trade is how to allocate the credits. One way is to "grandfather" existing firms, and allocate credits in proportion to current or past emissions. Another way (typically favored by economists) is to auction off the credits. This is one of the ways credits will be allocated under S. 3036. Specifically, carbon allowances will be auctioned off and the government will use the proceeds to invest in low-carbon technologies and attempt to offset energy price increases caused by the imposition of a carbon cap.

If enacted, S.3036 would generate substantial revenue for the federal government. This prompts a question from a reader: Why, then, is this not a "Bill for raising revenue" under Article I, section 7 of the Constitution (the "Origination Clause"), which requires that such bills "originate" in the House of Representatives? Good question, I thought. I don't teach this issue in my Constitutional Law class, and I'm a bit rusty on legislative procedure.

A super-quick (and superficial) web search reveals an answer: Bills that are primarily for other, non-revenue-generating purposes, that have the incidental effect of raising revenue, don't count. So, for example, under United States v. Munoz-Flores, a bill imposing a "special assessment" on some criminals under the Victims of Crime Act of 1984 was not a "Bill for raising revenue" that needed to originate in the House. Given this holding, and the Supreme Court's general tendency to defer to Congress on such questions, it appears that an Origination Clause challenge to a climate cap-and-trade bill that originated in the Senate would not be very fruitful.

[NOTE: Post edited to fix embarrassing typo/word omission.]

	[Jonathan Adler, June 4, 2008 at 6:08am] Trackbacks Is Climate Legislation a "Bill for Raising Revenue"? This week the Senate is debating S.3036, the Lieberman-Warner Climate Security Act. A key feature of the bill is the creation of a cap-and-trade system for carbon dioxide emissions. Basically, the government will cap aggregate carbon dioxide emissions and allocate tradeable emission credits (or "allowances") to firms. The point of such a regime is to reduce the cost of emissions control by encouraging the greatest reductions from those firms that can reduce their emissions at lowest cost. Assuming the transaction costs of the trading regime are relatively low, firms with comparatively high emission control costs could purchase credits from firms with comparatively lower control costs. A key issue in setting up any cap-and-trade is how to allocate the credits. One way is to "grandfather" existing firms, and allocate credits in proportion to current or past emissions. Another way (typically favored by economists) is to auction off the credits. This is one of the ways credits will be allocated under S. 3036. Specifically, carbon allowances will be auctioned off and the government will use the proceeds to invest in low-carbon technologies and attempt to offset energy price increases caused by the imposition of a carbon cap. If enacted, S.3036 would generate substantial revenue for the federal government. This prompts a question from a reader: Why, then, is this not a "Bill for raising revenue" under Article I, section 7 of the Constitution (the "Origination Clause"), which requires that such bills "originate" in the House of Representatives? Good question, I thought. I don't teach this issue in my Constitutional Law class, and I'm a bit rusty on legislative procedure. A super-quick (and superficial) web search reveals an answer: Bills that are primarily for other, non-revenue-generating purposes, that have the incidental effect of raising revenue, don't count. So, for example, under United States v. Munoz-Flores, a bill imposing a "special assessment" on some criminals under the Victims of Crime Act of 1984 was not a "Bill for raising revenue" that needed to originate in the House. Given this holding, and the Supreme Court's general tendency to defer to Congress on such questions, it appears that an Origination Clause challenge to a climate cap-and-trade bill that originated in the Senate would not be very fruitful. [NOTE: Post edited to fix embarrassing typo/word omission.]