According to an October 22nd story in Environment & Energy Daily (“Climate: GOP Fence Sitters Voice Concerns Over Allocations” by Darren Samuelson), several key swing-vote Senate Republicans — including Senator Lisa Murkowski, ranking member of the Energy and Natural Resources Committee — are voicing skepticism about the Senate’s Boxer-Kerry climate bill’s cap-and-trade system because of the free allocation of some of the allowances to various recipients in the private (and public) sector.
There may be sound reasons for concern about the developing Senate bill, but the so-called “free allocation” should not be one of them. Indeed, this debate is unfortunately repeating the confusion which was prevalent in the press and the blogosphere about the allowance allocation in the Waxman-Markey legislation in the House of Representatives (H.R. 2454).
Rather than being a “massive corporate give-away” of 80% of the allowances to private industry — as it was frequently characterized — the H.R. 2454 allowance allocation would result in precisely the opposite, namely, about 80% of the value of allowances accruing to consumers, small business, and public purposes, and some 20% accruing to covered, private industry (a split which is roughly consistent with the recommendations from independent economic research).
And directly to Senator Murkowski’s and others’ concern, the nature of the free allocation of allowances does not — with some relatively minor exceptions — affect either the environmental performance or the overall social cost of the system.
The deal-making that took place in the House and will take place in the Senate for shares of the allowances for various purposes is a good example of the useful, important, and fundamentally benign mechanism through which a cap-and-trade system provides the means for a political constituency of support and action to be assembled (without reducing the policy’s effectiveness or driving up its cost).
I have explained all of this carefully in a previous post, and so rather than repeat it here, I offer this link to my post from May 27th on “The Wonderful Politics of Cap-and-Trade: A Closer Look at Waxman-Markey.”
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