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.