Hundreds of Economists Sign SACE Statement on Cap-and-Trade Auctions

Stephen Smith | March 6, 2009 | Climate Change, Energy Policy
Panel discusses the importance of cap-and-trade auctions
Panel of economists discusses the importance of cap-and-trade auctions

It’s hard enough to get a few people to agree about where to have dinner, so when more than 600 of America’s leading economists agree on something there must be little doubt about it.

On March 4, 2009, SACE released a statement signed by more than 600 economists who agree that Congress must auction pollution allowances in a carbon cap and trade program rather than give them away for free to polluters.

Rep. Lloyd Doggett (D-TX) and Rep. Chris Van Hollen (D-MD) joined us to unveil the statement and a full list of the economists that signed on. Both Congressmen spoke strongly for auctions, and Mr. Doggett said, “There’s value in this right to pollute. I don’t believe in giving it to polluters. I believe it’s held in the public trust.”

While the hundreds of economists who signed our position statement represent both ends of the policy spectrum and come from a diverse set of institutions, they share a consensus that auctions, not free credits, create the most efficient and equitable program to cap global warming pollution while protecting the economy.

Of course, the polluters disagree. They argue that with free credits they can protect consumers from rising prices. What they don’t say is that they will raise the prices anyway.

In fact, that’s just what happened in the U.K. Under the European Union’s emission trading program, the U.K. gave away too many allowances and the country’s ten biggest polluters received a windfall worth more than $6 billion. The Financial Times reported that free allocations “led to price volatility in the carbon markets and record profits for utility companies.”

In contrast, England’s first auction in November 2008 netted more than $80 million. Making polluting industries pay for their pollution equips governments with the money needed to offset price increases through dividends or rebates, tax relief or investments in energy efficiency and renewable energy.

Office of Management and Budget Director Peter Orszag told the House Budget Committee just this week that, “If you didn’t auction permits, it would represent the largest corporate welfare program that has been enacted in the history of the United States.” Dr. Orszag later told reporters that a permit auction is the most important part of a cap-and-trade program that works.

The consensus is clear: while 600 economists might not agree on what to do with the revenues generated, they know there won’t be any revenue unless Congress auctions the pollution credits from the start.

Stephen Smith
Dr. Stephen A. Smith has 30 years of experience effecting change for the environment. Since 1993, Dr. Smith has led the Southern Alliance for Clean Energy (SACE) as its executive…
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