Fun With Auctions
Dave Roberts excerpts
a great CongressNow
article about an obscure, tediously wonky, and utterly important climate-change issue: If Congress decides to create a cap-and-trade system to limit greenhouse emissions across the country, how should it give out the pollution permits? Auction them off? Or should legislators figure out for themselves who deserves pollution credits and simply give them away for free?
On the merits, a cap-and-auction seems somewhat more efficient, letting the market settle the initial distribution of CO2 credits. By contrast, if Congress was the one handing out credits, there's a risk that they'd hand out too many credits to well-connected companies. As I understand it, that's exactly why Europe's trading regime has foundered
so badly. Basically, a cap-and-auction is pretty similar to a carbon tax--there's less favoritism, and the government can raise revenue to invest in clean energy or public transit or to ease the pain of higher energy prices for low-income families. The big difference is it avoids the "t"-word. (Also, Congress would be explicitly setting a ceiling for emissions, rather than a dollar amount for the tax.)
Of course, this is exactly why many companies don't
want the credits to be auctioned off, because they'd have less chance of making a killing on the trades market. They also wouldn't be able to lobby for excess credits. So if Congress started seriously
talking about a carbon auction, all those companies who are throwing their support behind climate-change regulation--GE, Duke Energy, BP--would suddenly start sounding a lot less green.