Let's Keep the Public Purpose in Mind
Authors:
Brooks Yeager, Climate Policy Center
Kathleen Rogers, Earth Day Network

This year's tidal wave of Congressional and popular interest in climate change is sweeping in more than just greens and do-gooders -- the Gucci-clad lobbyists for America's most powerful corporations are now showing up too. The scent of the billions of dollars of value that would be created by even the most modest economy-wide cap to reduce carbon dioxide has utilities forming rival camps and energy titans drooling. But before we all get swept up blindly in this tsunami, we should take a hard look at the plan. Instead of lining corporate pockets, we can and should channel the money raised by selling carbon pollution permits toward vital public and environmental purposes.
Where would the money come from? Under a "cap and trade" program, we would limit the amount of carbon that could be emitted by America's utilities, industries, and transportation system. Anyone who produces or imports coal, oil, or natural gas would need permits for the amount of carbon they introduce to the economy. Because the total amount of carbon permitted would be capped below business-as-usual levels, the permits would have immediate value in the marketplace. Even the most modest cap and trade bills currently under consideration would create more than $50 billion in permit value per year. This value essentially comes from the higher energy prices Americans will pay as we wean our economy away from fossil fuels.
Companies that receive permits will likely resell some of them at the market price. Yet these same companies are asking us to give them these permits for free, using the term 'grandfathering' as a rhetorical fig leaf for this enormous giveaway. When coal utilities received grandfathered permits to emit sulfur dioxide in the acid rain program, pollution was reduced -- but those utilities reaped huge windfall profits - receiving valuable permits for free, yet still passing on the increased market price of coal to their customers. It was a sweet deal for them- but not for the rest of us.
Auctioning the permits would serve both the public and the environment better. A public purpose allocation strategy would use the auction revenue to achieve key environmental and social goals related to the emissions reduction program. For example, some percentage of the money could go to states where job losses result from higher energy prices, for retraining and transition assistance. A percentage could be used to help poor people afford the higher prices of fuel and electric power. A percentage could be used to support long-term energy research and development to advance us toward a carbon-free energy economy. A percentage could be used to plan strategies for coping with and adapting to the impacts of climate change, such as rising sea levels and increasing droughts, that scientists tell us are already unavoidable. Lastly, a small percentage could be used to help developing countries reduce their emissions and invest in adaptation strategies as well.
Unfortunately, while policy makers and lobbyists argue about what ultimate reduction target a cap and trade program should aim for, very little attention is being paid to the critical question of how we should get there - the structure of the carbon reduction program. Some of the leading bills on Capitol Hill actually leave the whole mechanism to the EPA to decide. Currently, only the legislation introduced by Representatives Tom Udall (D-NM) and Thomas Petri (R-WI) contains a detailed program allocating most of the money to public purposes.
This is a classic case where the politically easiest route is the least wise policy choice. The easiest way for Congress to sell an emissions reduction program to industry is to sweeten the pot by giving away billions of dollars worth of "grandfathered" permits. But such giveaways would likely increase costs economy-wide, diminish the program's impact in terms of actual carbon emission reductions, and grant huge windfall profits to the very industries that are causing most of the problem.
Instead, we should auction all the permits, and use the revenues for public and environmental purposes. This strategy harnesses market dynamics for maximum efficiency in reducing emissions, and provides for crucial investments in our people and in our carbon-free future. Why should we settle for anything less?
About the Authors
Brooks Yeager is the Vice President of the Climate Policy Center, a non-profit organization dedicated to developing an ambitious, economically smart, and politically sustainable climate change program in the United States. Yeager can be reached at (202) 775-5191, or at yeager [at] cpc-inc.org.
Kathleen Rogers is the President of Earth Day Network, a non-profit organization that seeks to grow and diversify the environmental movement worldwide through education, politics, events, and consumer activism. Rogers can be reached at (202) 518-0044, or at rogers [at] earthday.net.