Greenhouse Gases - To Pay For Allocations Or Not?

The Obama Administration is going to impose CO2 limits on at least some industries, certainly power producers. This will probably mean that allocations to emit CO2 will either be auctioned off, with money going to the Treasury, or given away. In either event, the allocations will diminish over time, reducing the amount of CO2 that can lawfully be emitted in the atmosphere. Power suppliers will have to reduce CO2 emissions, presumably by choosing new power sources (wind, nuclear, solar, etc instead of coal) or by shutting down fossil-fuel burning plants. The alternative will be to buy CO2 allocations on the market, which will become increasingly expensive as the number of allocations is reduced.

As Dan Farber reports, the thought that the allocations might be handed out angers some environmentalists, many of whom have a visceral hatred of power companies in general and coal burning power plants in particular. But they should realize that auctioning the allowances is only going to be passed on to ratepayers, and is nothing more than a new (and incredibly large) tax. If the goal is to reduce CO2 emissions, the free allowances do the same work as auctioned allowances.

Reducing the demand for coal has a cost that West Virginians will pay locally. This editorial from the Charleston Daily Mail talks about the effect of suspending mountaintop mining permits, but the same reasoning applies to CO2 allocations that force us away from burning coal.