Green and fiscally smart, too

Green and fiscally smart, too
We should not stick consumers with tab for carbon-cap bill

By Stephen A. Smith

Tennessee Voices

Economists know that there is no free lunch. Everything has a cost, and legislation that will limit our nation's global-warming pollution must be no different.

President Obama made clear in his recent address to Congress that he expects Congress to send him legislation that places a market-based cap on our country's greenhouse gas emissions. The administration's budget has also made it clear that it is up to Congress to ensure that polluters, rather than the public, bear the cost of reducing the nation's pollution from dirty fuel sources.

In constructing a carbon cap-and-trade system, the distribution of pollution allowances will be one of the most important policy details. Some electric utilities argue that auctioning these allowances will raise energy prices for consumers. What they don't say, however, is that energy prices will rise under any program to address climate change. Giving free credits to polluters will not protect consumers.

Leading economists nationwide agree that auctioning the credits will prove the most efficient and equitable way to administer the credits. Recently, the Southern Alliance for Clean Energy released a statement from more than 600 economists throughout the U.S. who endorse auctioning all of the pollution allowances. Economists know that giving polluters free credits will only create huge windfall profits that do nothing to protect consumers.

Recent experience proves this point.

When the United Kingdom gave away credits to polluters under the European Union's trading program, the result was higher costs for consumers and windfall profits for polluters. The EU Observer reported that the free allocations "led to price volatility in the carbon markets and record profits for utility companies."

In December 2008, the U.K. decided to reduce free credits and moved toward an auction system. The first auction last year netted $81 million, which the government can use to offset the cost of capping carbon and transitioning to a clean energy system.

When the U.S. Senate debated climate-change legislation last summer, it nearly repeated the U.K.'s costly error. That Senate bill would have provided huge windfalls to the owners and shareholders of power and manufacturing plants by allocating approximately 75 percent of the credits in the first year of the program and more than 30 percent of the credits by the end. These free allocations would have been a mistake. In fact, free allocations produce corporate welfare for the very industries that contribute most to global-warming pollution.

The truth is that any program to address climate change will affect energy prices. But auctioning the credits equips policymakers with the resources they need to make investments in our economy and protect consumers from higher energy costs.

Climate change is a serious problem, and it deserves a serious discussion, but those who say that free credits to polluters will protect consumers are misleading. The only way to lead the world in solving climate change, while protecting consumers and strengthening America's economy, is to auction all pollution credits.