Boucher vs ED on cap-and-trade auctions 2

Posted by Brad Johnson Wed, 19 Sep 2007 17:46:00 GMT

From E&E News (subscription required), at an event in Washington hosted by the Council on Foreign Relations, Rep. Rick Boucher (Va.), chair of the Energy and Air Quality Subcommittee of John Dingell’s Energy and Commerce Committee, said he planned to draft a cap-and-trade bill that distributes tens of billions in pollution credits to U.S. industries for free:

I’m disinclined at the moment to do auctioning, at least in the early years to give it very much prominence, if any at all. The best we can do is give the allowances to the emitters according to their needs. We’re going to have enough problems as it is with coal-fired utilities, for example, and other carbon-intensive industries meeting our production schedules. I think perhaps, at least for the early years, it’s better not to compound these problems by imposing a cost on these emitters of having to go out and pay for these allowances. It will be the least painful, most politically attractive way to do it.

In other comments, Boucher asked Pelosi to delay the conference committee negotiations on the energy bill until he produced his draft cap-and-trade bill, but he said she probably won’t. He agrees with the 80% by 2050 target but is unsure of the path to there: “The schedule that takes us to that very aggressive target will be perhaps the most difficult thing we have to negotiate.” He will be releasing a series of position papers over the coming weeks.

In contrast, Nat Keohane, Ph.D., the Director of Economic Policy and Analysis at Environmental Defense offers support for full auctions in a blog post countering Greg Mankiw’s recent NYT op-ed favoring a carbon tax over a cap-and-trade system (in line with Robert Shapiro’s argument):
Mankiw assumes that allowances in a cap-and-trade system would be handed out for free rather than auctioned, thus generating no federal revenue. Now, I admit that this has been the modus operandi in the past. Virtually all allowances were handed out for free under the wildly successful sulfur dioxide trading program in the U.S., set up by the 1990 Clean Air Act Amendments. But that doesn’t mean it has to be that way.

The alternative, full auctioning, would raise exactly the same amount of money as a carbon tax, and there are signs that it’s gaining ground. Earlier this year, several states participating in the Regional Greenhouse Gas Initiative, including New York and New Jersey, announced plans to auction off 100 percent of their allowances. Plus there are calls to phase in auctioning in the European Union’s Emissions Trading System.

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  1. Shannon Wed, 19 Sep 2007 19:54:47 GMT

    If I were a corporation that polluted a significant amount of greenhouse gas, and I heard that the federal government was going to give out pollution credits for free, I would pollute as much as possible now to justify having lots of credits. That way if the credits cost money later, I could seel them. And if they styed relatively cheap, I could continue to pollute with no penalties. Basically this idea stinks and they should listen to the people who established the tradable permits markets before opening their mouths.

  2. Kira Thu, 20 Sep 2007 21:18:37 GMT

    I was surprised to see people read Nat’s words as “full support for auctions.” He did not mean to express that!!

    Here’s what Nat says, clarifying that he was responding to Mankiw’s argument, NOT reflecting a position on auctions:

    “The argument in Climate 411 was a response to Mankiw, not an affirmative statement of position. In other words, the point is that this whole revenue argument can go both ways—on the one hand, an auction would raise the same amount of revenue as a tax; on the other hand, tax revenue could always be used for purely political purposes, i.e. special interests, burden-sharing, technology funding, etc., just as auction revenue could, and just as is represented by free allocation. So Mankiw’s argument is not a convincing argument in favor of a tax rather than C&T.”

    Ed. Not “full support for auctions,” but “support for full auctions.” I’m glad that Nat recognizes that a cap-and-trade system without auctions is the economic equivalent of subsidizing existing pollution (since he recognizes the economic equivalence of a tax and of a full-auction cap-and-trade system). I’ll be interested to see what position ED takes on emissions allowance distribution.

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