Saturday, April 18, 2009

Climate change policies

There is an increasing amount of debate in the US on climate change policies. President Obama proposed a cap and trade system in his budget. All of the carbon permits would be auctioned off - none would be given to industry - and the bulk of the revenues derived would be given back to taxpayers as part of the Making Work Pay credit.

In contrast, in the EU, companies got a large proportion of the permits free - about $1.2 billion worth last year. This undermines the system.

The US Congress, unfortunately, is more short sighted. They are proposing that the MWP tax credit expire in 2011. They are also making noises about giving away some of the permits.

As to the first, low and moderate income consumers spend a large proportion of their family budgets on energy. They should receive a rebate to offset the costs of compliance. This also gives them the financial incentive to economize on energy - consumers get a windfall if they save. The link I posted is a Congressional testimony from an economist at the Center on Budget and Policy Priorities, which advocates for low and middle income consumers.

As to the second, economists at CBPP and at the Congressional Budget Office argue that giving away permits would result in windfall profits to oil, gas and coal producers and users. Producers and utilities would not use this largess to reduce prices for consumers, either.

Congress must stop playing its usual short-sighted games. Now is as good a time as any to enact climate change - if we wait until the economy recovers (which may take years), the excuse will change to "we can't undermine our global competitiveness." Pass climate change now and make giveaways to consumers, NOT to energy and utility companies.

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