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

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The EPA has just declaredf carbon dioxide a danger to public which could trigger regulationn of CO2 emissions undere the CleanAir Act. At the same climate czar Carol Browner is urging Congress to establisuh abroad U.S. greenhouse gas policyg before global climate changed talks begin near the end ofthe year. To this end, U.S. Henry Waxman, D-Calif., and Edward Markey, D-Mass., have introduce d a bill titled “The American Cleabn Energy and Security Act of Although the bill promotes clean energy andenerguy efficiency, the most significant provisions are thoser mandating reductions in CO2 emissions. The proposes mechanism for getting from here to theredis “cap-and-trade.
” This involvews first setting a limit on the totapl volume of emissions that can be producexd across the U.S. in a given year and then grantinhg tradablefederal permits, called to covered entities for each ton of CO2 emitted. The intentiom is to encourage firms that find it cheap to cut emissiom to do so while allowing those with no easy means to reducer pollution to buypermitws instead. The Waxman-Markey bill woulx reduce the number of available allowances each year in orded to achieve an 83 perceny reduction in CO2 emissionsby 2050. Waxman-Markey does not addressz how allowances would be initially distributexd or what percentage might be auctioned or simpluy allocatedto polluters.
Some observers argue that with many industries currently suffering from the economic downturn, the auctioning of permits would be The U.S. Chamber of Commerced has warned that many companies could face additiona l fiscal burdens that might threaten theitr survival if forcedto “bid” for CO2 emission rights in today’sa recessionary economy because it would be difficulyt to pass these costs on to By contrast, some environmental groups are relishinhg the prospect of billions of dollars from permit auctionws that could be spent on research into, and subsidiez for, alternative energy sources.
The issue of allocatiojn versus auction is of particulatr concernto America’s electric utilities. According to the Edison Electricc Institute, power generation from all sources accounts for roughly 40 percenfof U.S. carbon dioxide emissions. If the industry were requirer to bid for 40 percent of the CO2 this would result in a sizeable spike in the cost ofdeliverex power. What’s more, the huge demand for permitw from this one economic sector would push up the pricew of permits for every other A better approach would be to initially allocatwe allowances to the power sectot proportional to its level of CO2 emissionss while gradually shifting to an auction This would help ease the transition toa carbon-constrainedr economy as all technology options — includingf renewables, advanced nuclear generation and carbojn sequestration — become available and as compliance cost s are stabilized.
It would also cushion the impacts onelectricithy customers, particularly low-income families and energy-intensive businesses. Permity allocations have been used successfully for many years unded the federal Acid Rain a cap-and-trade program that has significantlyg reduced sulfur dioxide emissions, and at a much lowet cost than had been initially projected. Numerous organizations have expressed support for CO2allowance allocations, instead of during the early stages of cap-and-trade. For example, the U.S.
Climate Action Partnership — an alliance of major businessew and leading climate and environmentalgroups — arguesa that an allowance value distribution structur e can cushion the costs to both consumerx and businesses during the transitiob to a full auction Support for allocations has also come from the Pew Centere on Global Climate Change, major labor organizationsw and the National Associatioj of Regulatory Utility Commissioners. Without question, reducing greenhouswe gas emissions is the most serious environmental challenges America hasever faced. Cap-and-tradew can produce tremendous benefits over but it comes with a substantiallprice tag.
By initially allocatinbg allowances, and not auctioning them off to the highest we can lessen the burden on consumers while stil l achieving the goal of substantially reduced CO2 emissionsz in theyears ahead.