Good morning, class! Today we're going to talk about auctioning emission permits under a carbon cap-and-trade system!

[groans, sound of spitball hitting blackboard, shoes scuffling]

Wait, lemme try again:

Good morning, class! Today we're going to talk about looking out for the little guy and sticking it to The Man!

Ah, the ears perk up.

The progressive grassroots has not been fully engaged in the fight over climate legislation. There are any number of reasons for this state of affairs -- I could write volumes -- but the main one is that to most progressives, it's opaque. There are lots of arcane, wonky details involved, and not much in the way of gut feeling or visceral connection. "Save the Earth" is pretty damn abstract compared to war, government surveillance, economic inequality, and other issues you find eliciting passion on dKos et al. Those battles seem to involve animating progressive principles like fairness and personal liberty in a way that climate doesn't.

But I'm here to tell you, friends: climate policy does involve those principles. Crucially. Centrally. If progressives don't start paying attention, they're going to allow the poor to get royally, royally screwed. Again.

The climate legislation before Congress -- America's Climate Security Act (ACSA), co-sponsored by Sens. Joe Lieberman (I-Ct.) and John Warner (R-Va.), likely be introduced to the Senate floor in April or May -- is just as much about social and economic justice as it is about the atmosphere. Billions of dollars are at play. Who pays? Who benefits?

Cap-and-trade

Let's briefly review what ACSA would do. The bill would establish what's called a cap-and-trade system, whereby the government caps the greenhouse gas emissions permitted in a given year and then ratchets that cap down over time, toward some target. (Most greens, and scientists, favor 80% reductions by 2050, or even higher. Obama, Clinton, and the Congressional Dem leadership are all on board with that number as well, at least rhetorically. ACSA's target is 70% by 2050.)

The amount of GHGs under the cap is divided up into permits, which are distributed at the beginning of each year and can subsequently be bought and sold like any commodity. As the number of available permits declines over the years, they become more expensive and in more and more cases it will be cheaper to reduce emissions than to buy permits.

The idea is to create a market in GHG emissions, with all the attendant market efficiencies. The invisible hand will make the cheapest emission reductions first, and thus the long-term reductions will come a least possible cost. (The same basic approach worked quite well to reduce the chemicals that cause acid rain.)

Show me the money

Now, let's take a step back. Remember, the point of all this is to place a value on something (GHG emissions) that had previously been free. What happens when the government places value on an abundant commodity that was once free? Well, for one thing, there's suddenly lots and lots of money in play.

That's where progressives come in. It's our job to make sure that big corporations don't make out like bandits at the expense of the working class.

The key juncture where this plays out is in the initial allocation of the permits. There are two ways to distribute them: give them away or sell them.

The big polluters, especially coal-based utilities, think permits should be given out based on historical emissions -- i.e., that the biggest polluters should get the most. They need a shit-ton of free permits to "ease the transition" to lower-carbon technologies, you see. Not coincidentally, if this advice were taken it would amount to enormous windfall profits for those polluters.

The alternative is for the feds to sell the permits -- or more specifically, to auction them, and allow competitive bidding to establish the market price. This way, polluters pay to pollute, and instead of windfall profits for them, the money goes to the government as revenue.

(Side note: obviously, you could mix the two, giving some permits away and selling some. We'll return to that later.)

So that's the question here: who should get all this money? Industrial polluters, or government?

In my next post, I'll review the arguments in favor of auctioning rather than giving away permits, and review the political state of play on the question. Sorry to be so damn prolix.

Comments (13)

1. Gotta love someone who uses the technical term "shit-ton" - will withhold much comment till part 2, where we will no doubt see the big$$ polluters merely paying for the privilege...

   Posted by leftofcenter at 02/28/2008 @ 7:02pm

2. pffft! just hit zero with a spitball.

   pffft! got LOC....

   Posted by ibbleblibble at 02/28/2008 @ 7:16pm

3. 3rd option: Give all the credits to ordinary citizens. Then the oil companies would need to purchase them before they can take the fossil fuels out of the ground.

   Posted by apater at 02/28/2008 @ 7:20pm

4. Mr Roberts....what about "carbon credits"?

   Not much mention of how THAT is a "rich man's game"....Why?

   Because it's the whole basis of Mr. "Inconvenient Truth" keeping his lavish lifestyle for him and Tipper!

   Posted by Mask at 02/28/2008 @ 8:02pm

5. and the band played on.................

   Posted by frosty zoom at 02/28/2008 @ 9:47pm

6. co-sponsored by Sens. Joe Lieberman (I-Ct.) and John Warner (R-Va.)

   hmmmmmmmmmm?

   Posted by frosty zoom at 02/28/2008 @ 9:48pm

7. Regardless if the Government sells or gives away something that isn't theirs to begin with, these permits will be sought after and big money will play a big part.

   Capitalists like me will be paying attention and try to position ourselves......to catch some of that `clean' money, which, heheh, will be collected by big corporations and passed on down to me! You may not want to know where this `clean' money comes from......but let's just say, I'm always amazed of Mr. Roberts' type who think corp. will just eat the costs...yeah, just like they did with all the other gov't imposed costs of doing business, right?

   Quick test of your financial IQ: If corp. can't pass on ALL of their costs of doing business over time, what happens?

   Posted by Happy at 02/28/2008 @ 9:58pm

8. Posted by ZERO 02/28/2008 @ 8:15pm | ignore this person

   actually my specialty is the tack in the chair...

   Posted by ibbleblibble at 02/28/2008 @ 10:25pm

9. I'd like to take this opportunity to congratulate Jonah Goldberg for hitting number 1 on the NYT Bestseller list with 'Liberal Fascism: The alternative history of American liberalism that reveals its roots and commonalities with classical fascism". Along with the continuing trainwreck of the NYT stock price and the utter failure of Hollywood's knee-jerk America-hating snoozefests, it's the feel-good story of the year.

   Posted by pontificus at 02/29/2008 @ 01:05am

10. Posted by PONTIFICUS 02/29/2008 @ 01:05am | ignore this person

    nice projecting there, fascist! i thought we were commies? jeez - get yer ignorant propagandistic lies straight.

    Posted by ibbleblibble at 02/29/2008 @ 01:23am

11. Posted by PONTIFICUS 02/29/2008 @ 01:05am

    Wasn't it Uncle Joe who said democratic socialism and fascism are twins? Goldberg is not saying anything except what perceptive political observers have always known. Granted it does have some particular relevance wrt to the AGW fascists.

    So on a more realistic, non corporate facilitating, no hairshirts please, note than the climate fascists play:

    "China Turns Up Heat"

    http://tinyurl.com/yq2uvd

    Posted by harvey 79 at 02/29/2008 @ 02:54am

12. Someone please e-mail me when this transition has occurred and the tipping point of rationing has funneled the money through government hands back to the people.

    This way I can quit working and just stay home and watch the cash roll in.

    Now I can have the time to deal with the 10-12" of Global Warming on my driveway. (With more on the way.) :))

    Posted by Sliver at 02/29/2008 @ 09:33am

13. Ponti-Your book is aimed at uneducated people who don't know that a liberal can't be a fascist.That would be a contradiction in terms.

    Posted by i'm nobody at 02/29/2008 @ 10:08am