Are Emissions Allowances in Cap-and-Trade Bills Really So Bad?
Today, the Senate Energy and Natural Resources Committee begins the real work on the Kerry-Boxer climate change bill: talking about how to allocate allowances for cap and trade.
Actually, the bill calls it the “Pollution Reduction and Investment Program” but, you know, a rose by any other name…
The allowance allocations were probably the most important part of the Waxman-Markey since it’s what generated industry support for the bill.
David Roberts at Grist is pretty worked up about these giveaways, not because it will affect the net carbon reductions (it won’t), but because it involves “basic questions of economic fairness.”
Ironically, both Roberts on the left, who wants to auction allowances for the public good, and critics on the right, who consider the distribution of allowances to industry a giveaway to “rent seekers,” oppose allowance allocation.
But are allowances really so bad?
Let’s look at the research of experts who will be testifying before the committee today.
Roberts likes the scholarship of Chad Stone of the Center on Budget and Policy Priorities, whose paper Changing Climate Bill To Give More Allowances To Electric Utilities Would Likely Hurt, Not Help, Consumers, kind of makes his point of view pretty clear.
It’s worth noting, however, that Stone approves of the allocations in Waxman-Markey. It’s reasonable to think the senate will mimic, if not outright copy, that model.
But Roberts all but skips over the scholarship of Massachusetts Institute of Technology’s (MIT) Denny Ellerman who takes a pragmatic approach in this paper about the European Union’s Emissions Trading Scheme. (Full report here).
Ellerman writes that CO2 prices high enough to stabilize emissions amounts to hundreds of billions of dollars a year, so it’s not surprising that interest groups will lobby hard to influence decisions.
Since societies give deference to prior use claims – ie. electricity generators and industries that could previously emit for free – its reasonable that the companies would expect to be granted some allowances.
More to the point, Ellerman writes:
If nothing else, free allocation facilitates getting a program to price CO2 emissions up and running quickly, rather than spending years with affected interest groups fighting any program at all.
One can’t forget that passing a climate change bill is an exercise in the politics of the possible.
