Cap and Trade and Consumer Fairness
When it comes to cap and trade, handing out free permits allows firms to capture windfall profits at the expense of consumers. Sightline's memo explains why.
Why Free Allocation of Carbon Allowances Means Windfall Profits for Energy Companies at the Expense of Consumers
Media contact: Eric Hess, erich@sightline.org, 206-447-1880, x. 109
Authors: Clark Williams Derry, clark@sightline.org
Eric de Place, eric@sightline.org
Sightline supports auctioning permits in carbon cap and trade programs. That’s because handing out free permits allows firms to capture windfall profits at the expense of consumers.
While there are misconceptions about the economics of allocation, real world experience in Europe shows us that free permits equate to windfalls for polluters. And there is agreement among economists that free permits and auctioned permits add up to the same costs for consumers. Sightline prepared this memo to explain why.
Report contents:
1. Allocation economics: A simple explanation
2. Allocation economics: More detail
3. Windfalls: What Happened in Europe
4. The evidence: A literature review
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