US carbon market supporters are divided on whether Obama should sell permits

Publish date: March 18, 2009

US President Barack Obama’s proposal to charge billions of dollars for carbon permits in a European-style cap-and trade system has divided businesses, environmentalists and Democrats, whose accord is needed to help pass a US law to limit climate damage from greenhouse gases.

“In his budget proposal, President Obama has thrown down the gauntlet and challenged Congress to deliver a workable cap-and-trade system,” said Jonathan Temple, director of Bellona USA,

“Many important details, including the cost of allowances, need to be resolved. Bellona supports President Obama in his desire to get this done this year.”

Added stress for the United States to set out its first ever limits on carbon emissions and develop an emissions trading scheme is coming from the United Nations, which wants to see the country initiate a system prior to climate negotiations in Copenhagen in December for an agreement to replace the Kyoto protocol.

Obama, top members of his party, some Republicans, and corporations such as General Electric and Duke Energy all support fighting global warming through setting up a European-style market for trading permits to release carbon dioxide.

But they disagree on whether companies should have to buy the government-issued allowances or, at first, get them for free in the proposed cap-and-trade system.

Obama proposed auctioning all permits to raise at least $646 billion from 2012 to 2019. White House official Jason Furman, deputy director of the National Economic Council, told a February 26th meeting of the Senate Finance Committee that the revenues from a US cap and trade system could reap three times that, the Wall Street Journal reported.

According to Senators who attended the meeting, the paper reported, a US cap-and-trade system could actually generate between roughly $1.3 trillion and $1.9 trillion between fiscal years 2012 and 2019.

Despite the new higher estimates that could come of cap-and-trade, some corporate allies and lawmakers from both parties say a cap-and-trade plan would amount to a tax increase falling most heavily on consumers whose power comes from coal, the most polluting power source.

“It was wrong-headed thinking,” Michael Morris, chief executive officer of American Electric Power Company, the biggest US electricity producer using coal, told Bloomberg. 

“Don’t call it cap-and-trade when it’s really a tax,” he told the newswire.

The Ohio-based utility wants no-cost permits at the outset. Congress faces “an awfully long debate” if a bill imposes all those costs on companies, Morris said.

Speaking last week with a group of CEOs in Washington, Obama indicated he might be persuaded to budge from his 100 percent auction stance. He said he will work with companies to “find a structure that arrives at that right balance” between giving permits away and selling them.

“We are not going to be able to move this in an effective way without partnership with the business community,” Obama told the group.

Democrats want legislation this year

Senate Majority Leader Harry Reid of Nevada and House Speaker Nancy Pelosi of California, both Democrats, have said they want to pass climate-change legislation this year, putting a national cap on U.S. carbon emissions for the first time.

White House energy and climate “czar” Carol Browner has suggested there are no plans for Obama to send a cap-and-trade bill to Congress and that the administration will work with Congress “to develop legislation,” Bloomberg reported.

No one is expecting an easy compromise.

“There will be a big battle over just about everything with this,” said Dan Weiss, climate strategy director at the Centre for American Progress, a policy group in Washington that advises Democrats. “The companies that shoot their pollution into the sky for free don’t want to have to start to pay for it.”

Will cap-and-trade pay for tax cuts?
Obama’s budget proposes using $520 billion, more than 80 percent of the estimated carbon-auction revenue over eight years, to pay for a tax cut. That’s part of his promise to provide economic relief to about 95 percent of US workers. Without that income, the White House would need another way to finance Obama’s campaign pledge.

UN pressure on the US to reach agreement
UN-led talks to forge a new global climate treaty in Copenhagen are putting pressure on the White House and Congress to cap carbon-dioxide emissions. Greenhouse gases must peak in 2015 and drop by 50 percent by 2050 to avert the worst effects of climate change, the UN said in a 2007 report.

The European Union in 2005 opened the world’s largest carbon market. Global trading of greenhouse-gas permits will more than quadruple to $550 billion by 2012, according to research by London-based New Carbon Finance.

When the European system started, polluters got free permits and, in some cases, reaped windfall profits after carbon trading began.

Germany, the Netherlands and other countries handed out fewer no-cost permits in the second phase of the programme that began in 2008.

Europe will require some power producers to buy all carbon permits beginning in 2013.

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