How much cap-and-trade is politically feasible?

By Felix Salmon
May 12, 2009

John Kemp has a great column today on the politics of cap-and-trade in America. This is particularly interesting:

The White House included revenues from permit sales in its budget plan for symbolic reasons — to show it was committed to implementing cap-and-trade; it would spend the political capital needed to get legislation through Congress; to showcase the benefits auctions could bring; and to show how low-income groups could be protected against the impact of rising permit and energy prices by redistributing the proceeds.

But officials have been careful not to rely on the anticipated revenues too heavily. The president’s plan allocates the money to discrete tax breaks and research spending rather than general government revenues. If the permit revenues do not materialize, the tax breaks and research funding will be cancelled, and there will be no implications for the deficit.

The big picture here, in other words, is unchanged: you do what’s possible. A cap-and-trade bill is possible while a carbon-tax bill is not possible, so you do a cap-and-trade bill. A 100% auction cap-and-trade bill, as promised by Obama during the election campaign, is not possible, so you give away emissions permits at the beginning and then dial them back over as long as 10-15 years.

All of this is fine, as Kemp says, just so long as it’s automatic — ie, that Congress won’t have to vote again in order for the move to a 100% auction system to be completed. And just so long as the caps are inviolable, regardless of how many of the emissions permits are given away and how many are auctioned.

I’m cautiously optimistic that something can be cobbled together, and that it will create an infrastructure which can be fine-tuned in the future. But of course I’d be much happier if we could start with a 100% auction system on day one, as happened with RGGI. Obama has a strong mandate, it seems, but unfortunately it’s not that strong.

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