Thursday, February 26, 2009

Carbon Trading Assumptions in President Obama's 2010 Budget

From Tne New Republic's The Vine blog:

...First, the basics: The White House is assuming we'll have a cap-and-trade system up and functioning by 2012, which might be feasible if Congress finalized legislation this year or early next, though we're talking breakneck speed. ("It's an optimistic calendar," one official admitted.) The proposed cap would aim to slash U.S. greenhouse-gas emissions 14 percent below 2005 levels by 2020, with an 83 percent cut by 2050. Officials were quick to note that the conversation on this "was just beginning," but that may not entirely placate green critics, because those targets are actually fairly timid. Indeed, recent climate science suggests we should shoot for a 20 percent cut below 1990 levels by 2020—a far steeper reduction than Obama's contemplating.

On a related note, the White House is expecting the price of carbon will settle at around $20 per ton. That's actually cheaper than the price under Europe's emissions-trading regime (before the financial crisis hit), and it's cheaper than the $28 per ton predicted under last year's Boxer-Lieberman-Warner cap-and-trade bill, which was lambasted by many environmentalists as far too flimsy. Administration officials did, again, caution that this figure was just a "placeholder" and a "fairly conservative number" at that.

...The White House is also assuming that all of the carbon permits issued under the cap would be auctioned off, with zero free giveaways for select industries. For a quick primer on why auctioning is a good idea, see this old op-ed by Peter Orszag, the guy who... now runs the White House budget office. Orszag's key point is that handing out free permits to utilities and manufacturers actually does nothing to shield consumers from energy price hikes, since companies wouldn't actually pass on the savings. So, if we want to mitigate any pain from a carbon cap (and we do), it's better for the government to auction off the pollution permits and use that revenue to cut taxes or offer rebates. And that's exactly what Obama's proposal does: Of the revenue that's raised, the vast bulk (about $60 billion per year) will go toward making the existing "Making Work Pay" tax credit for working families permanent, while $15 billion per year gets spent on various clean-energy technologies, energy efficiency, green vehicle technology, and so forth....

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