There's an interesting piece today in CongressNow on the debate over auctioning vs. giving away credits in a cap-and-trade system. (CN requires a subscription, which you can get for the low, low price of $1500 or so. I'm on the 10-day evaluation thing, so enjoy these pieces while they come, 'cause there's no way Grist is coughing up that kind of dough.)
The basic lay of the land is this: enviros, and other people concerned about making the system actually work to reduce greenhouse gases, favor auctioning the credits and using the revenue to support renewables and reduce the impact on low-income people. The big corporate players, and the economists who carry their water, support giving away credits, because otherwise, they'll have to pay more energy costs will spiral out of control and we'll all freeze to death in the dark!
Here's a chunk of the story:
"The key issue here is how you put out your allowances," said Rep. Tom Udall (D-N.M.), who is sponsoring cap-and-trade legislation along with Rep. Tom Petri (R-Wis.), this afternoon.
Their bill allows a combination of free allocation and auction, which advocates say limits the immediate economic impacts of cap-and-trade, including energy costs. Petri today said it is important to "strike a balance between maintaining and helping our economy grow and [adopt] plans to promote better environmental stewardship."
Cap-and-trade proponents often point to the success of the method in fighting acid rain in the Northeast during the early 1990s, under which the credits were given away to polluters.
But Joseph Kyle of the Congressional Budget Office said the sheer breadth of an economy-wide emissions trading scheme could dwarf the acid-rain reduction plan by a factor of 30. "The stakes in this discussion are very high," he said.
Terry Dinan, also of CBO, said that carbon dioxide trading could eventually result in tens of billions of dollars in trades annually. Under an auction plan, the government would capture that value, which could be reinvested in clean energy technologies and/or helping the poor to adapt to the expenses of a carbon-constrained economy. However, even under a free-allocation system, the federal government would still capture some of the resulting profits through taxation, Dinan noted.
While critics of free allocation say it amounts to a windfall profit for polluters, Dallas Burtraw, an economist with the think thank Resources For the Future, said that free allocations can be used to promote promising technologies. He also suggested that decisions on whether to distribute or sell credits could be left for states to decide.
However, a wide range of stakeholders this afternoon made it clear that they are ahead of lawmakers on carbon allocation.
Joe Kruger, the policy director of the National Commission on Energy Policy, a bipartisan panel comprising energy experts from an array of backgrounds, recommended an initial split on allocation/auction, with no more than 50 percent of credits to be distributed for free before switching to a complete auction over time. The revenue raised from the auction would then be invested in clean energy technologies, he said.
But industry, especially the energy sector, sees it differently. Paul Bailey, an attorney representing electric utilities, said that such companies should receive large allocations to offset the costs of complying with a cap-and-trade scheme. More auctioning will lead to higher compliance costs and energy prices, he warned.
Environmentalists clearly favor auctioning, said Dale Bryk of the Natural Resources Defense Council. "This is definitely the train that is leaving the station," she said. Her comments were echoed by Jon Kostyack of the National Wildlife Federation, which would like to see revenue generated from an auction used to aid wildlife and restore ecosystems.
Charlie Moore, of the development group Oxfam, said the "vast majority" of credits should be auctioned, with the proceeds dedicated to helping the poor deal with the ripple effect higher energy costs are expected to have across the economy.
This could be done through an "adaptation fund" that could aid the poor affected by climate change.
However, Moore, a former Hill staffer, noted that free allocation is a politically more palatable option. "It's much easier to move a system through Capitol Hill if you give the credits away then if you auction them," he said.
I suspect all the policy arguments one way or another are just so much noise, and that last paragraph tells you all you need to know about how this is going to play out in the real world.
N.Y. Sen. Kirsten Gillibrand answers Grist’s questions on the Kerry-Boxer bill
Ask Umbra on buying carbon offsets
Comments
View as Threaded
NonprofitWatch Posted 11:47 pm
25 Jun 2007
Or is support of auctioning the righteous posture to the grassroots while NRDC/ED will be simultaneously working with their Partnership on advancing the trading regimen which in the final wash will be without the auction component?
bernardo issel - http://www.NonprofitWatch.org -
bernardo (at) NonprofitWatch.org
Permalink
naturescene Posted 1:15 am
26 Jun 2007
I'm pretty sure the only economists that are pushing for free allocation would be those that receive their paychecks from DuPont, GE, etc.
Permalink
NonprofitWatch Posted 2:59 am
26 Jun 2007
Sorry if can't help recollect ED/NRDC's past support of NAFTA, utility deregulation, and Enron -- all which turned out quite badly.
bernardo issel - http://www.NonprofitWatch.org -
bernardo (at) NonprofitWatch.org
Permalink
Billhook Posted 8:46 am
26 Jun 2007
sometimes called TCQs (Tradeable Carbon Quotas)
as recommended by UK Environment Sec.y Milliband,
for the acknowledgement of each person's GHG output entitlement,
under an annually declining national GHG budget,
and its formal accreditation as a usable and/or tradeable asset.
This empowerment avoids the surreal absurdity of giving windfall profits
to profiteering corporate polluter-shareholders
(under grandfathering),
and avoids the fundamental inequity of energy usage rights
being granted according to peoples' wealth
(under 'vending', and, notably, under a carbon tax).
That this third option of TCQs gets no coverage in US affairs is no surprise,
but I'm puzzled that it isn't widely discussed by US activists,
as its merits are very relevant for sustainable development.
A further aspect of the welcome discussion of carbon pricing mechanisms,
is that nothing of significance will be done nationally before an international treaty commitment is agreed.
If, as seems highly probable, that treaty results in GHG output entitlement
being surplus in the G-South, and scarce in the G-North,
then wealthy 'northern' nations will need to fund the purchase of GHG output entitlement,
until such time as it gets clean of fossil carbon dependence.
My guess is that there are already UK officials
quietly planning to put a levy on TCQs to raise those vital funds.
Why else did the UK govt give Milliband so much policy freedom ?
Regards,
Bill
Permalink
Billhook Posted 10:24 am
26 Jun 2007
Herewith, without.
As a Brit, I'm aware of the merits of the third option,
sometimes called TCQs (Tradeable Carbon Quotas)
as recommended by UK Environment Sec.y Milliband,
for the acknowledgement of each person's GHG output entitlement,
under an annually declining national GHG budget,
and its formal accreditation as a usable and/or tradeable asset.
This empowerment avoids the surreal absurdity of giving windfall profits
to profiteering corporate polluter-shareholders
(under 'grandfathering'),
and avoids the fundamental inequity of energy usage rights
being granted according to peoples' wealth
(under 'vending', and, notably, under a carbon tax).
That this third option of TCQs gets no coverage in US affairs is no surprise,
but I'm puzzled that it isn't more widely discussed by US activists,
as its merits are very relevant for sustainable development.
A further aspect of this welcome discussion of carbon pricing mechanisms,
is that nothing of significance will be done nationally
before an international treaty commitment is agreed, ratified and in force.
If, as seems highly probable, that treaty results in GHG output entitlement
being surplus in the G-South, and scarce in the G-North,
then wealthy 'northern' nations will need to fund the purchase of GHG output entitlement,
until such time as they get clean of fossil carbon dependence.
My guess is that there are already UK officials
quietly planning to put a levy on TCQs to raise those vital funds.
Why else did the UK govt give Milliband so much policy freedom ?
Regards,
Bill
Permalink
TokyoTom Posted 6:47 pm
26 Jun 2007
Policy at home will be as much about politicians doling out pork as about effective policy - and until now, the policy delay has all been about pork - by allowing the fossil fuel producers and major users to graze for free on the global commons, while passing the costs off to the future.
A tax approach would be most effcient, as cap and trade leave continuing incentives for cheating and for new allocations, and with Congresscritters eager to assist. But no one has the courage to push taxes, as Americans prefer a more costly free lunch approach. Cap and trade approaches also involve Government unilaterally holding that it has the right to create and allocate property rights in the atmosphere, which some might find a bit troubling. I would prefer to see these rights distributed by a trust fund that would distribute the proceeds annually to citizens on a per capita basis.
But if want to have something, cap and trade is probably the best we can get, and although I favor auctions, I realize that a free allocation might be the best way to reduce political opposition by powerful industries - even as it is clearly a windfall.
But the emissions reductions and market impact of creating carbon pricing signals are the same whether the permits are dirstibuted free or auctioned. What really matters are the emissions levels at which permits are set, and whether offsets are permitted and how they are verified.
I would prefer to rely solely on the pricing effects of the permits to call forth investment in varius technologies, and to avoid politcial pork barrel that will only waste money and slow the development of the best meaningful mitigation technologies.
In any case implementing a cap and trade system at the upstream levels seems far more easily administeres than doling them out at the level of individuals, such as Milliband suggests.
Permalink
Sean Casten Posted 11:52 pm
26 Jun 2007
You've hit the issue spot on - and worth noting that both RGGI and Kyoto got it wrong. It is politically vastly easier to allocate, for the simple reason that the deepest pockets like it. But it makes no policy sense - as Kyoto has shown.
Consider an allocated world. Dirty old coal plant is allocated because they're there pre-cap. New combined cycle gas plant wants to come on line, displacing said coal plant's load. Gas plant has to pay for it's carbon, runs the economics and finds not only that it has to pay charges that the coal plant doesn't, but also that the clearing price of power on the grid is artificially depressed by the fact that the dirty old coal plants haven't had to pay, nor factor that cost into their price. Ergo, clean(er) gas doesn't get built while the coal plant keeps operating. All in the name of carbon reduction.
Permalink
Billhook Posted 9:09 pm
28 Jun 2007
Gristers have shown an almost total lack of interest in anything other that the mutually deficient options of the Grandfathering or Vending of emissions entitlements.
While the sole response to Acknowledgement, in the form of TCQs, was merely dismissive.
So are Americans really so trained that they're looking for American solutions to a Global problem ?
And nothing but an American solution will, in fact, get discussed ?
Meanwhile, here in the UK,
where discussions seem at least marginally more rational,
Milliband, (Environment Sec.y who firmly boosted TCQs)
has been promoted to Foreign Secretary (equiv State Dept) in the new govt under Gordon Brown.
So I guess you'll be hearing rather more of certain un-American ideas in the near future.
Regards,
Bill
Permalink