Guest post from Jim Roumasset:

RFF's Weathervane Blog has a brief side-by-side comparison of Kerry-Boxer and Waxman-Markey. Environmental economics has clearly influenced the debate. Some outstanding issues:                                           

  1. There is no required revenue recycling in WM. 25% of permits under KB should be auctioned with revenue used for "deficit reduction." This does not require payroll-tax reduction as warranted.
  2. There seem to be no guarantees that electricity-customer rebates from local distribution companies will not undermine incentives for demand-side conservation.
  3. All of the green-job type add-ons make the program more expensive. The good news about the 15% renewable portfolio standard is that it may not be binding. (You don't have to actually produce that much electricity from renewables. Other demand reduction measures may suffice.)
  4. Why should offsets be limited to 2 billion? If this constraint is binding, it will just leave an unexploited inefficiency on the table.  Or is this a safeguard against offset abuses that will persist in spite of the Offset Integrity Advisory Board?
  5. Border adjustments are still vague but in any case cannot avoid global distortions. There will be a wedge between energy prices in the part of the world bound by climate commitments and the part that is not bound.
  6. All of the departures from the optimal program lower the second-best carbon price. If reducing emissions by 20% by 2020 and 80% by 2050 were optimal under the ideal program, less ambitious targets would be appropriate given the distortions proposed.

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