With Western governors poised to announce details of a program to cap global warming emissions in seven Western states, environmental organizations are urging officials to make sure polluters pay for pollution permits, rather than receive what amounts to billions of dollars in trade-able assets for free. Economists agree that capping emissions and making polluters pay for permits at an auction is the most cost-effective and fair approach to cutting global warming pollution, without increasing the cost to consumers, according to a new report released today by environmental organizations that have been monitoring the Western Climate Initiative and other such “cap and trade” programs.
“The smartest, cheapest way to tackle global warming is to place a cap on emissions and to make companies pay for every ton of pollution they put into the atmosphere,” said Jeremiah Baumann of Environment Oregon. “Making polluters pay prevents windfall profits, speeds our transition away from dependence on foreign oil and fossil fuels, and creates jobs implementing global warming solutions like energy-efficient vehicles and buildings that also save consumers money.”
The report, “Fair Deal for Consumers or Free Ride for Polluters?: The Case for Auctioning Pollution Permits in the Western Climate Initiative,” recommends that Western officials maximize the percentage of allowances that are auctioned as part of its global warming cap-and-trade program, and ensure that the revenue from those auctions is invested in the public interest to maximize economic benefits of a transition to a clean energy economy and to lower costs for consumers and business.
The report asserts that auctioning allowances prevents polluters from gaining windfall profits as a result of an emissions trading program. Europe’s emission trading system, which included free distribution of the vast majority of allowances, has resulted in power plant owners receiving billions of dollars in profits from the program, without regard to whether they reduced pollution. In the United Kingdom alone, windfall profits from emission trading have been estimated at nearly $2 billion. These profits come directly from the pocketbooks of consumers.
“Choosing how to distribute pollution permits is one of the most important decisions that policy-makers will make on climate change policy,” said Eric de Place of Sightline Institute. “Economists agree that energy prices will be the same whether permits are auctioned or given away for free. The only difference is where the value of the permits goes: to polluters or to the public.”
The report also recommends that revenues from the auction be used to:
- Support clean energy development, including research and development funding and early market support for clean technologies;
- Invest in energy efficiency improvements to reduce the cost of the program to consumers;
- Invest in a low-carbon transportation infrastructure; which will also help citizens cope with rising fossil fuel costs; and
- Assist consumers and communities in the transition to a world shaped by global warming, through rebates and other measures.
“Giving away tens of billions of dollars in pollution allowances is a huge step backward from the clean energy future we should be pursuing. We shouldn’t be foregoing revenues that can be invested to help consumers with their sky-high energy bills and protect our natural resources,” said Doug Howell of the National Wildlife Federation.
The report also shows that policy makers in other regions of the United States and countries which have experience designing cap-and-trade programs have decided in favor of auctioning allowances to achieve the most emission reductions at the lowest cost to society. The European Union has responded to the problems in its initial phase with a plan to transition to auctioning 100 percent of its pollution permits. Additionally, in the Regional Greenhouse Gas Initiative in the Northeast, where 10 states have agreed to reduce global warming pollution from power plants, all of the states have committed to auctioning nearly or fully 100 percent of their pollution allowances. Additionally, most of the global warming bills currently in the United States Congress include a significant auctioning component. The strongest of those bills requires the auctioning of 94 percent of allowances initially, increasing to 100 percent over time.
“Western state governors are faced with a choice: side with consumers and a clean energy economy or side with polluters,” said Rob Sargent, Energy Program Director for Environment America. “Policy-makers in other states and regions have already decided that auctions are preferable and we are calling on the western states to do the same.”
In addition to capping emissions and auctioning allowances, Environment America recommends that policy-makers adopt complementary policies that further reduce global warming emissions, including stronger energy efficiency standards for vehicles and equipment, enhanced building energy codes, renewable energy standards for electricity generation, investments in public transportation, global warming performance standards for electricity generation and transportation fuels, and incentives for deployment of clean energy technologies, such as solar power and “zero-energy” homes.