When No Bill Really Is Better

by Brien Jackson

I really can’t emphasize enough how wrong Matt is in this post. It might be true that there’s not much difference between auctioning permits and giving them away from an environmental stand-point in a vacuum, but this stuff doesn’t exist in a vacuum. And when you account for likely political outcomes, a give away regime is about the worst thing you could possibly do.

Cap-and-trade is already politically dicey, and for reasons that are easy enough understand; it means people’s energy bills are going to increase. But this can be offset by rebating revenues earned from the program to consumers, if  the permits are auctioned. This is nice because it not only lessens the burden consumers have to bear, but if the rebate is allocated on a flat basis, consumers who consume less than average amounts of energy actually come out gaining money after the rebate, which creates a lot of incentive for consumers to lower their energy usage.

But if there’s no auctions, then there’s no revenue. And if there’s no revenue, there’s no money to rebate. This means consumers are going to be hit with the increased energy costs, with nothing to offset them. You’ll still have incentives to use less energy, obviously, but the difference is that the program will be extremely unpopular with the average voter. And as something that directly takes money out of their pocket, it will be the sort of very unpopular thing that actually sways votes. A cap-and-give away regime passed by a Democratic Congress and a Democratic President would spark a massive backlash against the Democratic Party, and create an opening for big electoral gains for Republicans. It would be about the closest thing to political suicide I could imagine Democrats coming up with. And that might be a sound trade off if you could somehow guarantee the program would remain in place forever, but is there anyone who doesn’t think a newly elected Republican governing majority wouldn’t shred the program with extreme haste? And then you’re left with no carbon pricing regime, a new Republican Majority, a Democratic Party that will be exceedingly unpopular and will never shake the perception that all they do is raise taxes on everyone, and cap-and-trade will be a dead concept entirely. It really is the worst possible course of action.

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