<![CDATA[Grist - Comment Feed for Waxman-Markey giveaways pit consumer protection against climate protection]]> Grist Comment Feed en Comment #1 by kandimba http://www.grist.org/article/waxman-markey-giveaways-pit-consumer-protection-against-climate-protection/ Mon, 01 Jun 2009 08:29:46 -0700 http://www.grist.org/article/waxman-markey-giveaways-pit-consumer-protection-against-climate-protection/1 This is new to me but there is something that I don't get. If you follow economic reasoning, you will find that the initial method of allocation is irrelevant for the rise in electricity costs. What determines the rise in energy prices is the price of an allowance and that is determined by supply and demand. The fact that permits (or allowances) are auctioned or given for free (grandfathered) influences firm's profits but not the price of permits.

Ricardo Coelho

http://cooltheearth.wordpress.com

]]> This is new to me but there is something that I don't get. If you follow economic reasoning, you will find that the initial method of allocation is irrelevant for the rise in electricity costs. What determines the rise in energy prices is the price of an allowance and that is determined by supply and demand. The fact that permits (or allowances) are auctioned or given for free (grandfathered) influences firm's profits but not the price of permits.

Ricardo Coelho

http://cooltheearth.wordpress.com

]]> Comment #2 by Gar Lipow http://www.grist.org/article/waxman-markey-giveaways-pit-consumer-protection-against-climate-protection/ Mon, 01 Jun 2009 13:21:58 -0700 http://www.grist.org/article/waxman-markey-giveaways-pit-consumer-protection-against-climate-protection/2 http://www.grist.org/article/cap-and-trade-permit-giveaway-hurt-waxman-markey-effectiveness.

However this post is not discussing that, but discussing whether permit profits are passed back to consumers or not, and what happens if they are. I make arguments in the post why I think they won't be passed along, but as I did in the post lets look at the implications if they are. The utility receives free permits. But they have to pass the savings from having them along to consumers. So no emergency in having to cut emissions in order not have a steep price increase. OK, well they cut emissions either by investing in consumer efficiency or by running their own plants more efficiently or by switching coal to natural gas, or by installing renewable generation or whatever. If they do that they will have excess permits to sell. But they have to pass the profit from that on to consumers as well! So to the extent the utilties receive free permits whose value they have to pass on to their consumers, they lose incentives to cut emissions. The price is still there, but the incentive a permit with a price on it would produce is gone. If they could keep the profits it would be different, but their profit situation is no different whether they invest in renewable energy or use the permit. Obviously this changes if the permits they receive don't cover 100% of their needs, and as the cap declines. But that just means that free permits whose value they have to pass along to consumers only fail to affect them to extent they continue to get free permits and have to pass them on to the consumers. And of course passing the savings from permits on to consumers also lowers consumer utility prices and decreases incentives for them to reduce electricity or gas use. The way it is passed on is supposed to prevent this, but again you can see in the post that this does not quite happen.

]]> http://www.grist.org/article/cap-and-trade-permit-giveaway-hurt-waxman-markey-effectiveness.

However this post is not discussing that, but discussing whether permit profits are passed back to consumers or not, and what happens if they are. I make arguments in the post why I think they won't be passed along, but as I did in the post lets look at the implications if they are. The utility receives free permits. But they have to pass the savings from having them along to consumers. So no emergency in having to cut emissions in order not have a steep price increase. OK, well they cut emissions either by investing in consumer efficiency or by running their own plants more efficiently or by switching coal to natural gas, or by installing renewable generation or whatever. If they do that they will have excess permits to sell. But they have to pass the profit from that on to consumers as well! So to the extent the utilties receive free permits whose value they have to pass on to their consumers, they lose incentives to cut emissions. The price is still there, but the incentive a permit with a price on it would produce is gone. If they could keep the profits it would be different, but their profit situation is no different whether they invest in renewable energy or use the permit. Obviously this changes if the permits they receive don't cover 100% of their needs, and as the cap declines. But that just means that free permits whose value they have to pass along to consumers only fail to affect them to extent they continue to get free permits and have to pass them on to the consumers. And of course passing the savings from permits on to consumers also lowers consumer utility prices and decreases incentives for them to reduce electricity or gas use. The way it is passed on is supposed to prevent this, but again you can see in the post that this does not quite happen.

]]> Comment #3 by kandimba http://www.grist.org/article/waxman-markey-giveaways-pit-consumer-protection-against-climate-protection/ Mon, 01 Jun 2009 13:36:22 -0700 http://www.grist.org/article/waxman-markey-giveaways-pit-consumer-protection-against-climate-protection/3 Yes, that is correct. I was referring to a popular argument to defend grandfathering, not your post, I should have specified that. What this shows is that however we design emissions trading systems, there will allways be inacceptable consequences for the environment and the citizens. So why do we do this, instead of investing directly in renewable energy, energy conservation and mass transit? Because it pleases the industry, which is very keen of market solutions. And everyone knows that we have to please the industry (sarcasm directed at corporate NGO's).

Ricardo Coelho

http://cooltheearth.wordpress.com/

]]> Yes, that is correct. I was referring to a popular argument to defend grandfathering, not your post, I should have specified that. What this shows is that however we design emissions trading systems, there will allways be inacceptable consequences for the environment and the citizens. So why do we do this, instead of investing directly in renewable energy, energy conservation and mass transit? Because it pleases the industry, which is very keen of market solutions. And everyone knows that we have to please the industry (sarcasm directed at corporate NGO's).

Ricardo Coelho

http://cooltheearth.wordpress.com/

]]>