I wrote a while back about how the Obama administration was advocating for some policies that are typically included in proposals for a carbon tax as part of their cap and trade plan. Specifically, the idea of using revenues raised as a tax refund to offset increased costs to end-users.
It turns out, it’s not the only part of the proposed legislation that merges aspects from two policy ideas. The National Journal has a very well-written piece that examines how some of the details of the carbon legislation floating around the Hill actually take the best aspects of the cap and trade and carbon tax ideas. Here’s an excerpt:
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As many news outlets are reporting, the Obama administration’s proposed budget presumes about $75 billion in annual revenue from the sale of carbon allowances (even though a cap-and-trade bill has yet to be implemented). While this is certainly an interesting move, and perhaps a way to exert pressure on Congress to move forward with cap-and-trade legislation, what caught my eye is what Obama is proposing to do with the majority of the revenue from auctioning the permits to pollute - give it back to Americans in a tax cut that will help offset the increase in energy costs that will result under such legislation. The remainder of the funds, about $15 billion a year, will go towards energy R&D.
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A lot of people expect the incoming Obama administration to fundamentally alter the way our country thinks and acts around energy and environmental issues. While a lot of change can certainly come from top-down Federal initiatives (a country-wide cap-and-trade system, nationwide renewable portfolio standard, or federal tax incentives for renewable energy or energy efficiency investments are examples), at the end of the day energy policy really is a state issue. So we certainly need Federal action and direction, but ultimately we need legislative and/or regulatory bodies in 50 states and DC to take action as well.
This week we saw New Jersey and Virginia stake large claims toward a cleaner and greener future. And as a result, it looks likely that we can expect “big splash” actions in the near future from both states that would be similar to what I recently wrote about in Hawaii. The landmark reports that came out of New Jersey and Virginia are pretty thick and comprehensive so I’ll just offer a quick highlight of each and note that they are definitely worth a gander.
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About a year ago I attended a carbon conference in New York and I thought one of the best sessions focused on whether there were too many greenhouse gas allowances in RGGI (Regional Greenhouse Gas Initiative, the country’s first mandatory cap-and-trade market that goes live on January 1, 2009 - PDF overview here). One of the first questions that must be answered when designing a good cap-and-trade market is the level of the cap. Set the bar too high and it will be easy to meet which makes allowances essentially worthless (see Europe’s first attempt at cap-and-trade); set it too low and the cost of compliance could drive electricity rates much higher than anticipated.
One presentation delivered at that session was from Environment Northeast (PDF from the ENE website) which posited that weather and commodity costs caused RGGI’s cap to be set higher than perhaps it needed to be. Apparently 2005, the year that set the trajectory for the cap, had higher than normal emissions because it was both a “bad weather year” which led to higher demand and many bi-fuel generators in the northeast (that can run off either natural gas or oil) were using dirtier oil due to the huge spike in natural gas prices after Hurricanes Katrina and Rita. 2006 and 2007 saw milder weather and a heavier reliance on natural gas as oil prices steadily rose — which naturally resulted in lower emissions. The concern a year ago was that RGGI would remain overallocated and, like Europe’s carbon first trading scheme, be less than successful as a result. The latest from ENE (PDF), released yesterday, shows further cause for concern as the gap between actual emissions and the cap appears to have nearly doubled.
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