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How to Screw Your Constituents
Matt Yglesias watches the sausage grinder at work on the Waxman-Markey climate bill and is especially outraged at so-called moderates who insist that a large fraction of carbon emission permits should be given away, rather than auctioned off:
The moderate bloc [...] has portrayed itself as concerned with the climate crisis but worried about the tradeoffs with short-term economic growth. But the concession they’ve forced here doesn’t do anything to boost short-term growth. Instead, whereas auctioning the permits would have made rich people bear most of the cost of reducing emissions, by giving the permits away you make poor people bear most of the cost.
The environmental impact of the two methods is similar, and the overall costs are similar. But the moderates acted swiftly and decisively to reallocate a portion of the costs onto the backs of the poor. And they’ve done so specifically under guise of looking out for the interests of the working class. They ought to be ashamed of themselves.
In a way, this is even worse than Matt makes it out to be. As I understand the politics of the situation, the problem is basically regional: a lot of moderates come from the midwest and the south, where they rely on coal-fired plants for the bulk of their electricity. These plants emit more carbon than even other fossil-fueled plants, and way more carbon than hydro or solar plants. 
And to make it even worse, most of these states have done very little to become more energy efficient over the years. Put all this together and the bottom line is that carbon pricing hits them much harder than it hits, say, California.
This means that any bill that raises the price of carbon is disproportionately painful for the midwest and the south. So they want relief. Now, you can argue that global warming is such serious stuff that they shouldn't be given any, but let's face it: this kind of regional politics is pretty standard stuff. It's hard to get too bent out of shape about it.
Except for one thing: it won't work. The theory here is that giving away permits to coal-fired plants means they don't have to raise prices. After all, the permits are free. And this means that voters in the midwest and the south won't start hauling out their pitchforks and throwing out incumbents because their electric bills have gone up.
But guess what? The electric utilities are going to raise their prices anyway. Kevin Drum explains:
The economic theory involved is a little hairy, but those permits have a value on the open market, and that means that in many cases marginal producers can make more money selling their permits than by producing power. They'll only be willing to produce power if they can raise prices enough to make the power-producing business more profitable than the permit-selling business, and eventually everyone will jack up prices to follow suit.
This may sound abstract—even a bit fantastical—but it's absolutely real. In fact, when permits in phase one of Europe's ETS system were handed out for free, electricity prices rose and power companies pocketed a windfall profit (which Britain's Department of Trade and Industry estimated at about $1.1 billion a year in the UK alone). Dale Bryk, an attorney with the Natural Resources Defense Council (NRDC), puts it bluntly: "If you ask them point-blank if they'll charge customers for free permits, they won't tell you. But they know they will."
If moderates were demanding free permits because they wanted to keep electric prices in their states low for a few years while they work on converting to new power sources, that would be one thing. We could argue about whether it's a good idea, but at least it's normal, understandable stuff. But that's not what they're doing. Prices are going to go up regardless, and the free permits do nothing except provide windfall profits to operators of coal plants. The moderates pushing this "compromise" either don't understand basic economics, in which they case they need to learn some, or else they understand it perfectly well and like the idea of screwing their constituents in order to provide a bonanza for coal plant operators. In either case, yes, they ought to be ashamed of themselves.
I assume the budget of your
I assume the budget of your graphics department is nil, Kevin, but seriously there has to be some other slightly relevant free clip art out there.
Hmmmm
Can we just make those free permits non-transferable?
(PS - what's with the third person just prior to the final blockquote?)
What about municipally owned utilities?
My power company is owned by the city. I'm pretty sure it is operated as a non-profit business. I don't think your argument holds up in that case, does it?
Tripp
Last year, when the
Last year, when the Obamaites were in the process of deifying him as a candidate while demonizing Hillary as just an old pol, some of us did some research and discovered that Obama was a pol, too. He voted for ethanol subsidies to satisfy the southern Illinois farm bloc. So did Sens. Kohl and Feingold in my state Wisconsin. Democrats, not just Republicans, seek, above all, to get reelected. That is, until they're ready to got into the lobbying business full time. Why don't we name names of those who talk the green message but cave when some state constituency hollers?
self-quoting
the self-quoting was a little too clever for all of us readers. But good post.
Kevin Drum explains?
Kevin Drum explains?
I was curious about that too
?
Thank God the Senate will be
Thank God the Senate will be there to block this nonsense. Even if it does pass, rising electricity prices will give Republicans a winning campaign issue for years to come.
Power pricing is not a free market.
Most utilities have to get their local public service commissions to go along with any rate increases. Usually the PUCs, demand that the utility can earn a decent -but not too decent, return on equity. I suspect that they will take into account any windfalls that permit selling gives to the local utilities, i.e. they will probably take back some/all profits from selling the permits. Of course the utility only gets the windfall if it cuts its emissions enough to have excess permits, but this should incentivize them to spend money on conservation programs. The only fly in the ointment for that last statement is will the PUCs allow them to keep at least some of the profits from selling permits?
If the giveaways of permits
If the giveaways of permits start out at something like 50% and go to zero over something like five years I think it would be an ok compromise if it gets the system in place faster, or prevents other longer lasting compromises.
In those five years we would give away 0.5 + 0.4 + 0.3 + 0.2 + 0.1 years worth of permits for a total of 1.5 years of permits.
Every year without a system we effectively give away 1 year of permits.
Therefore getting the system in place with a phased out giveaway as I described is the same thing as getting one 18 months later that starts at 100%.
However if the phase in is more like: start with giving away 100% of permits, and after eight years (assuming the right can't stop or delay it) start phasing in auctioning over another eight years it is absolutely not worth it.
Oh, I also assume that the
Oh, I also assume that the cap won't be all that limiting at first so the permits won't be worth all that much at first.
Again if the giveaways phase out quickly they won't be as much of a windfall.
You *want* those free
You *want* those free permits to be transferable, just as you want auctioned permits to be transferable. If it costs $10 for somebody in New Mexico to cut CO2 emissions by a ton and $50 for somebody in Miami to do the same, you want to pick out the low hanging fruit first.
If you're concerned about adjustment costs, give block grants to states proportional to their 2005 CO2 emissions. This won't be fair to tree-hugging California or other environmentally conscious states, but it might be an adequate bribe. Said grants can be temporary and financed from sales of permits.
Similarly, temporary tax cuts could be handed out, varying by region.
Admittedly, I don't know whether the politics of the above would fly.
----
The problem with depending upon the PUCs is that, well, we want to raise electricity prices to some extent in order to encourage conservation (switching to compact fluorescent bulbs, buying energy efficient refrigerators and the like).
Words have meanings
It is simple once you understand that "moderate" means "bought-and-paid-for shill for big business".
I think that Cap and Trade
I think that Cap and Trade or Carbon Tax will work when AGW becomes a real bonafide threat. There will be a market then. It well be clear that it is something to be really worried about. However, the scientists have not made enough of a compelling case to defeat the skeptics. We should act now because the risks are too great if we are wrong is not a compelling argument.
The reason it won't work is that the left in this country has cried wolf on environmental things too many times. I wish that you guys were more responsible. I actually care for the earth and take seriously the stewardship of it. The forcing of climate change nonsense upon people who realize that the economics of the cure don't solve enough problems to make it worthwhile discredits you, and endangers the real stewardship of the planet. Rather than listening to the your own echo chamber, arguing about which is the most effective way to damage the economy by attempting to cure GW now, and dismissing everyone else as an energy company shill, you should take seriously the argument that Cap and Trade/Carbon Tax will not sell because the underlying supposed disaster of AGW has not been effectively sold.
Cried wolf about what,
Cried wolf about what, exactly?
Looking forward to the usual
Looking forward to the usual ad hominem attack by SA. I know, I must be a denier, and a shill, and....
Measure for measure is right.
I would hope that PUCs would be amenable to providing conservation signals to customers (but my experience is with more environmentally enlightened places). At least in places like California, we have a low(ish) base rates, then higher and higher maginal power rates as your usage goes up. That way presumably the poor don't get gouged, and the rich have at least some incentive to not be power hogs.
Any free passes had better
Any free passes had better not be transferable. They got those passes to produce electricity... Not to sell them.
Ugh, selling their passes might be more profitable for some, but it doesn't necessarily result in the dirtiest plants going down first. And it immediately benefits the dirtiest scum by giving them more permits because they're dirtier!
Isn't most of the common
Isn't most of the common stock and bonds of the southern and mid-west power companies OWNED by the big coal producers?
Hot air from John Hansen
John Hansen, you are a liar. That's not an "ad hominem". It's a fact. You repeatedly post statements that you KNOW are false. You are a deliberate liar, and you know it. It's as simple as that.
The problem that so-called "conservatives" face is that those who deny the existence of a problem don't get taken seriously and don't get a seat at the table where solutions to that problem are being debated. So-called "conservatives" like John Hansen who are committed to deliberately dishonest denialism have themselves to blame for being shut out of the discussion about how to address anthropogenic global warming.
Even the coal and oil corporations have given up on public denial of the problem (although they continue to fund fake, phony, so-called "conservative" think-tanks to confuse the public with the very sort of rubbish that Hansen posts here all the time). Companies like Duke Energy and even ExxonMobil now publicly acknowledge that the problem is real and needs to be addressed.
And the reason is simple. They know that the Democratic majority in Congress and the Obama administration are going to take action -- however belated and however inadequate -- to reduce emissions, and they know that action will have an impact on their profits. And they want a seat at the table where that action is being debated because, as the saying goes, those who don't have a seat at the table will be on the menu.
The only ones still pretending that the problem doesn't exist are brain-dead Ditto-Head fossil fools like John Hansen.
Government Mandated Cartel?
A cartel is when companies in the same market collude to collectively cut their production so that they all benefit from the higher prices. Cap-and-trade with allowances is when the government sets the limits for them and allows them to keep the profits from the higher prices. It's really that simple. If you want to protect consumers while restricting the total amount of coal burning going on, the only way to really acheive this is through an auction+rebate or tax+rebate type of scheme.
re:
Isn't most of the common stock and bonds of the southern and mid-west power companies OWNED by the big coal producers?
dont worry Obama says we can
dont worry Obama says we can solve all of our problems with clean coal.