Markey, Chairman of the House Select Committee on Energy Independence and Global Warming, introduced the Investing in Climate Action and Protection Act.
There are some significant differences between the two bills, but the one to keep your eye on is the way they create incentives to lower carbon emissions.
Both bills use some variation of an old idea: cap-and-trade system. Although having an atmosphere below 320 ppm of CO2 is very valuable, at present, there is no individual economic incentive to reduce CO2 emissions. Sure a lot of folks have bought a Prius, but the few of the benefits, even at $4 a gallon, are economic. How valuable are the benefits? The Congresisonal Budget Office released found:
"The range of recently debated policies and literature on the economic costs of reducing greenhouse-gas emissions suggest a CO2 price of about $5 to $65 per metric ton by 2020."
Last year, American Electric Power released 174 million metric tons of CO2 . At the low valuation that comes out to an increased cost by a cool $870,000,000.
The theory behind cap-and-trade is that a permit to emit CO2 will raise the production costs of polluters and they'll either change their ways or they'll be driven out of business by more efficient competitors. We were talking about this in my Economics Economics 101 16 years ago.
The key to the success of the market is how much those credits cost and how violations will be punished.
The The Lieberman-Warner Climate Security Act would give them away.. This from a Duke University analysis:
America’s Climate Security Act of 2007 allocates, or simply gives away, 49 percent of these permits over the lifetime of the program, starting with 79 percent in 2012 and ending with 31 percent in 2050...All-in-all, between 2012 and 2050, 102 billion pollution permits, worth $2.3 trillion,
would be given away.
Markey's bill
is quite different:
iCAP... set up a system for 100% auctions and invest money generated from polluters back to consumers and clean technology solutions.
Why is this important? Here's Washington Monthly's Kevin Drumm: -
[If] the emission permits are free... power plants end up raising their prices, but their costs don't change. Result: a huge windfall profit for GHG emitters. Some get more and some get less, but the overall net result is lots of extra profit, with the biggest polluters getting the biggest profit.
It will be interesting in the days ahead to see which part of these bills gets the lion's share of the debate. Will we hear more about how the market is created or the emissions reduction target, which is far less important.
