Kevin Drum thinks that a cap-and-trade system for controlling pollution is not worth having if you don’t auction off the permits:
There are loads of special interests who hate the idea of a 100% auction, of course. But once you start giving away permits, you’ll never stop. It is, plain and simple, a massive giveaway … makes a mockery of any serious cap-and-trade plan. …Without a 100% auction, cap-and-trade is a bad joke.
Unless you have the option of a decent tax scheme I don’t really see what his problem is. We live in a second-best world where we have to work within existing political constraints. Like it or not, energy generation industries often have a lot of political power and that needs to be considered.
The problem with giving away the permits on the basis of past emissions is that the largest emitters get to appropriate much of the surplus from the creation of the permit market. The permit market still allows only a limited quantity of pollution and that quantity doesn’t depend on whether you grandfather or auction off the permits.
We may think that it is unfair to give money to the biggest polluters at the expense of the ‘greener’ businesses, but perhaps that’s the price we need to pay in order to combat climate change. If given a choice between paying off the coal and gas industries to implement an effective cap on emissions, or doing nothing out of a sense of moral outrage, I know which way I’d choose.
Update: Obsidian Wings is strongly in support of Drum:
It’s a handout to corporations … [a]nd it raises costs to everyone else.
I agree that it would be preferable not to reward polluters, but sometimes it’s just not possible to get everything you want. I don’t think paying the polluters to ease passage of the legislation is too high a price to pay for a working cap-and-trade system.
Furthermore, the system is MEANT to increase the price of carbon intensive goods: if it didn’t then it wouldn’t be much good at reducing emissions.