Monday, November 19, 2007

USCAP and the Battle For $8 Trillion

The fight over who divvies up the spoils of proposed climate change legislation is heating up. There are many methodologies to figure the costs, some creative types can make the numbers jump through hoops. The number that I use is an average $200,000,000,000 per year for the next forty years, in 2007 dollars. Don't email on this one. I know the arguments. I've been a closet policy wonk since Rio '92. To put it more diplomatically:
"Think about it a little more and you will agree with me because you're smart and I'm right."
-Charlie Munger, Vice-Chairman, Berkshire Hathaway

First we'll watch Eileen Claussen of USCAP member PCCC, tie her logic into a pretzel.
(not Pretzel Logic, although the song's first line could be a comment on the upcoming Bali Bash:
"I would love to tour the southland, in a traveling minstrel show")

From Hill Heat:
Eileen Claussen of the Pew Center on Climate Change also strongly praised Lieberman-Warner. Her written testimony defends the giveaways to the coal industry in the bill:
While the use of a well-designed cap-and-trade program ensures the lowest overall cost, many important sectors of the economy will face real transition costs that can and should be dealt with through the allowance allocation process. Allocation, contrary to the impression some stakeholders may be creating, has no effect on the greenhouse gas reductions mandated by the cap. Given this, we should use the allocation process, in the early years of the program, to address the legitimate transition costs some sectors will face as we move to a low- greenhouse gas economy. . . The best hope, at the moment, lies with carbon capture and sequestration, which most experts believe will take at least a decade to deploy throughout the power sector. While we need not wait until then to begin cost-effective reductions, it would be appropriate to allocate initially a significant amount of allowances to this sector to help with transition. The bill does this and also appropriately uses bonus allowances and a clean coal technology program funded out of auction proceeds to accelerate CCS deployment and speed and smooth the transition. There is is a similar need for transition assistance in other sectors of the economy, most particularly energy-intensive industries that face significant foreign competition. As the need for transition assistance diminishes, the allocation of free allowances should phase out, which the bill does as well.
The three ways USCAP proposes to game the system are 1) Giveaways of emissions permits. 2) So-called credit for early action and 3) Setting the start date as far back as possible i.e. using 1990 vs. 2007 as the base.

The comment that cap-and-trade has the lowest overall cost is false.
The bit about transitions costs is spurious. The entire point of this exercise is to raise the cost of carbon-based energy high enough to change behavior.

In rank order of intellectual honesty, the proposals are: carbon tax, cap-and-auction and cap-and-trade. Transition assistance should go to the American people, the folks who will be footing the bill.

Next we see the media blitz against auctioning, with USCAP member Duke Energy taking the lead. Remember the whole point is to raise prices to change behavior.

Duke Energy says prices will go up if bill is enacted
Coal-fired plants would be charged allowances
From Bloomberg via the Winston-Salem Journal:
...Duke and other power producers that rely mostly on coal for generation oppose the sale of allowances included in the bill introduced by Sens. Joe Lieberman, I-Conn., and John Warner, R-Va. Initial allowances should be given to generators based on historic emissions, Duke said.

From the Cincinnati Enquirer:
Duke warns: Bills to rise
Carbon emission auction a bad idea, Congress told
..."Having to obtain allowances for existing coal plants through an auction is nothing more than a carbon tax," said Rogers. Some energy lobbyists have estimated the bill's cap-and-trade program would cost the average family more than $1,000 annually, according to

From CNN Money:
Power Costs Would Dramatically Increase under Lieberman-Warner Legislation:
"The focus of climate change legislation must be to protect Main Street consumers rather than to enrich Wall Street traders, who are eager to participate in a carbon auction and who profit from volatile markets," Rogers said.