The U.S. Energy Information Administration understated the potential cost of the proposed Lieberman-Warner climate change legislation by $1.3 trillion, the Industrial Energy Consumers of America said in a June 4 statement.

"The math is simple and indisputable," IECA President Paul Cicio said. "The EIA's natural gas price assumptions used to determine the cost of S. 2191 are about one-half of today's real-world forward prices." The IECA recalculated the study using forward price figures as of May 30.

EIA found that, if passed, the legislation would increase average annual household energy bills between $30 and $325 in 2020 and between $76 and $723 in 2030, excluding transportation costs. EIA found that the increasing cost of using energy reduces real economic output and purchasing power and lowers demand for goods and services, causing real gross domestic product to fall $444 billion to $1.308 trillion over the 2009 to 2030 period.

"To our knowledge, all entities that have conducted economic cost studies on S.2191 have used the EIA's natural gas cost assumptions except the ACCF/NAM study," Cicio said. "This means, all other study cost results have been under-estimated as well."

However, even when using EIA's price forecasts and IECA's use of the forward curve, there remains extreme uncertainty about the effects of the legislation.

Both forecasts and forward prices are based on short-term factors reflected in future prices, said Brian Frank, president of BP Energy Co., North America power and gas, at the recent GasMart conference in Chicago. BP Energy is a subsidiary of BP plc.

"The market generally extrapolates what it knows in the short term into the long term," Frank said.

The climate change bill, sponsored by Joseph Lieberman, I-Conn., and John Warner, R-Va., would cap U.S. emissions of carbon dioxide and other greenhouse gases. Debate on the bill began June 2 in the Senate.

The bill would specifically make refineries, power plants, factories and the transportation industry responsible for 70% of the reductions, and make emissions allowances available for trade in an open market. Proceeds from selling or trading those allowances, which could total more than $6 trillion over the next 40 years, would be reinvested in renewable energy and rebates to consumers.

Gas industry groups have called for changes to the bill. For example, the American Gas Association said the current structure should be modified to include state- or utility-sponsored conservation and efficiency programs, tightened building codes and standards, and higher appliance efficiency standards.