Via Joseph Romm, the Center for American Progress produces the very useful document "Cap and Trade 101: What Is Cap and Trade, and How Can We Implement It Successfully?" One question is, what do you do with the money?
Initial estimates by the Congressional Budget Office project that an economy-wide cap-and-trade program would generate at least $50 billion per year, but could reach up to $300 billion. Approximately 10 percent of this revenue should be allocated to help offset costs to businesses and shareholders of affected industries. Of the remaining revenue, approximately half should be devoted to help offset any energy price increases for low- and middle-income Americans that may occur as a result of the transition to more efficient energy sources. The other half of the remaining revenue should be used to invest in renewable energy, efficiency, low-carbon transportation technologies, green-collar job training, and the transition to a low-carbon economy. Some resources should also be invested in the energy, environment, and infrastructure sectors in developing nations to alleviate energy poverty with low-carbon energy systems and help these nations adapt to the inevitable effects of global warming. Revenues from the permit auction would essentially be “recycled” back into the economy to facilitate the transition to an efficient, low-carbon energy economy and ensure that consumers are not unduly burdened by potentially higher energy costs.
That sounds about right to me. I'm not sure that as a matter of abstract morality I really agree that it makes sense to set aside a chunk of the funds to defray "costs to businesses and shareholders of affected industries" but one can imagine putting something like that on the table as being crucial to actually getting anything done, and it's probably not worth being too fastidious about the precise ins and outs.
Photo by Flickr user Joi used under a Creative Commons license
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Heads in the Sand
You got it -- that's the most important passage in the paper. What happens to the revenue will be the big battle, and how it gets settled will determine the long-term political viability of the program. I was surprised to find that I agreed with CAP (or they agreed with me) almost down the line on this. I can even see the argument for the 10% to polluters. For one, it could buy them off. For another, it will take a little of the sharp edge off the short-term price spike, assuming coal plants and utilities use the money to reduce carbon and not just pocket it as profit. They'll spend it wisely if they know for certain that the gravy train's going to end and credits will start to get expensive in a few years. Long-term predictability is crucial -- this can't be something that gets politically fiddled with each time a new administration comes along.
Posted by David Roberts | January 22, 2008 11:44 PM