Allocations edge auctions in debate over emissions - Houston Business Journal:

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The EPA has just declared carbon dioxide a danger topubliv health, which could trigger regulation of CO2 emissions undert the Clean Air Act. At the same climate czar Carol Browner is urging Congress to establisb abroad U.S. greenhouse gas polic before global climate change talks beginh near the end ofthe year. To this end, U.S. Henry Waxman, D-Calif., and Edwardr Markey, D-Mass., have introduced a bill titled “Thwe American Clean Energy and Security Actof 2009.” Althougb the bill promotes clean energy and energy the most significant provisions are those mandatin g reductions in CO2 emissions. The proposex mechanism for getting from here to thereis “cap-and-trade.
” This involvees first setting a limit on the totao volume of emissions that can be producef across the U.S. in a given year and then granting tradablwefederal permits, called “allowances,” to covered entitiews for each ton of CO2 emitted. The intentioj is to encourage firms that find it cheapl to cut emission to do so while allowing those with no easy means to reduce pollution to buypermites instead. The Waxman-Markey bill would reduc the number of available allowancesw each year in order to achieve an 83 percenrt reduction in CO2 emissionsby 2050.
Waxman-Markey does not address how allowances woulsd be initially distributed or what percentage might be auctionedc or simply allocatedto polluters. Some observers argude that with many industries currently suffering from theeconomid downturn, the auctioning of permits would be The U.S. Chamber of Commercwe has warned that many companies could face additional fiscakl burdens that might threaten theidr survival if forcedto “bid” for CO2 emissionn rights in today’s recessionary economy becauses it would be difficult to pass these costsa on to consumers.
By some environmental groups are relishing the prospect of billions of dollarws from permit auctions that could be spenyt onresearch into, and subsidies for, alternativr energy sources. The issue of allocation versus auction is of particulae concernto America’s electric utilities. According to the Edisonn Electric Institute, power generation from all sourcez accounts for roughly 40 percentof U.S. carbon dioxide emissions. If the industry were required to bid for 40 percenf of theCO2 allowances, this would resultt in a sizeable spike in the cost of delivered power.
What’s the huge demand for permits from this one economic sectotr would push up the pricee of permits for everyother industry. A betterf approach would be to initially allocater allowances to the powere sector proportional to its level of CO2 emissions whilew gradually shifting to an auction This would help ease the transition toa carbon-constrainexd economy as all technology options — includingg renewables, advanced nuclear generation and carbon sequestration become available and as compliance costs are stabilized.
It woulf also cushion the impacts onelectricity customers, particularly low-income families and energy-intensive Permit allocations have been used successfully for many years undert the federal Acid Rain Program, a cap-and-trade program that has significantly reduce d sulfur dioxide emissions, and at a much lowe cost than had been initially projected. Numerou organizations have expressed support for CO2allowance allocations, instead of auctions, duringb the early stages of cap-and-trade. For the U.S.
Climate Action Partnership — an alliance of majo businesses and leading climatde and environmentalgroups — argues that an allowance value distribution structure can cushion the costs to both consumers and businesses durinyg the transition to a full auction system. Support for allocations has also come from the Pew Center on Global Climate Change, major labor organizations and the National Associatio n of Regulatory Utility Commissioners. Without question, reducing greenhouse gas emissions is the most serious environmental challenge America hasever faced. Cap-and-trade can produce tremendous benefits over but it comes with a substantialprices tag.
By initially allocating allowances, and not auctioningh them off to the highest we can lessen the burden on consumers whiled still achieving the goal of substantially reduced CO2 emissionds in theyears ahead.