Thursday, October 1, 2009

How Should Congress Allocate Carbon-Emissions Permits?

85 percent of the permits that will give utilities and other organizations the right to emit greenhouse gases into the atmosphere are going to be given away free of charge. Is that allocation scheme in the best interest of U.S. citizens?
The above question is asked and discussed in "Creating the Right Atmosphere: How Should Carbon-Emissions Permits Be Allocated?" in a September 30, 2009, W. P. Carey School of Business, Economics and Public Policy article.
Should the government sell the permits and generate revenue? Or give them away, as it did with most of the SO2 permits issued to comply with the Clean Air Act?

That's a question of great interest to carbon emitters, such as electric utilities. According to government data, energy-related carbon dioxide emissions represent more than 82 percent of total U.S. human-produced greenhouse gas emissions, and electric utilities produce 40 percent of those carbon emissions.

Not surprisingly, electric utilities are hoping the government will simply give the emission allowances away. And, that's what will happen with 85 percent of the emission allowances if the allocation details of H.R. 2454 prevail in a Senate bill....
So, according to [W. P. Carey Professor of Economics Kerry] Smith, the best approach would be to have an auction and allow utilities to buy the permits from the government. "We're trillions of dollars in debt, and we're giving these permits away?" he asks.
Read the complete article here.

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