UCS: Information on Benefits of Auctioning Emissions Allowances

Auction off "allowances" for heat-trapping emissions that cause global warming or give them away? That is the question.

John Holdren, President Obama's science adviser, told the Washington Post
this week that the administration is considering delaying auctioning
100 percent of the heat-trapping emission credits or "allowances" that
would be created under a climate program. "[W]hether you get to start
with [a 100-percent auction] or get there over a period of time," he
said, "is something that's being discussed."

Duke
Energy, a member of a coalition of 25 companies and five environmental
organizations called the U.S. Climate Action Partnership, wants to wait
10 years before moving to a 100-percent auction.

In
the House of Representatives, a recently introduced discussion draft of
comprehensive climate and energy legislation by Reps. Henry Waxman
(D-Calif.) and Ed Markey (D-Mass.) did not include details on whether
or not allowances would be auctioned or given away for free. Nor did it
indicate how any potential auction revenue would be spent.

Meanwhile, candidate Barack Obama's campaign platform
(pdf) affirmed the value of auctioning all pollution allowances. "A 100
percent auction ensures that all large corporate polluters pay for
every ton of emissions they release," it stated, "rather than giving
these emission rights away for free to coal and oil companies."

Experts
at the Union of Concerned Scientists (UCS) say immediately auctioning
100 percent of allowances is the best approach. That would raise the
money we need to provide consumer benefits, ensure that we meet our
heat-trapping emissions reduction goals, and help transition the
country to a new, cleaner economy.

"Giving
away allowances would be a huge sweetheart deal for polluters," said
Liz Perera, congressional representative for UCS's Climate Program.
"Worse, freebies for polluters would come at the expense of energy
efficiency and renewable energy programs that would benefit the public.
Electric utilities and other polluters are pushing for free allowances
so they can delay cutting their heat-trapping emissions, but we've
already had enough delay. We shouldn't sacrifice the economic and
environmental advantages of auctioning because polluters want to
maintain the status quo."

AUCTIONING UNDER CAP-AND-INVEST PROGRAM: HOW IT WOULD WORK

Under
a cap-and-invest system, the government would establish a national
limit, or cap, on heat-trapping emissions that would decline each year.
Polluters would have to purchase allowances in a periodic auction to
cover the heat-trapping emissions they produce each year. The cost of
those allowances would provide an incentive for polluters to cut their
emissions and would provide a strong incentive to invest in clean
energy technologies.

Auctioning allowances has two key advantages:

First,
auctioning would allow the market to set an appropriate price for
pollution, because polluters would have to estimate how much the
allowances are worth. Giving away allowances for free would diminish
their value, distorting the market and reducing the incentive for
investments in clean energy technology.

Second,
auctioning allowances would generate revenue that could fund measures
to help consumers, workers and low-income families make the switch to
cleaner energy as well as technologies and initiatives that help
prevent the worst consequences of global warming. Those include
renewable energy technologies, energy efficiency and international
forest protection.

The
country's first cap-and-invest program for heat-trapping emissions, the
Regional Greenhouse Gas Initiative covers utilities in 10 Northeastern
states. Most of the participating states have chosen to auction nearly
all of their allowances and invest the proceeds in energy efficiency
and renewable electricity sources. This program has already raised
$262.3 million for participating states. For more information, see
UCS's cap-and-invest fact sheet.