The Wall Street Journal’s blog says it well:
By giving away greenhouse-gas emissions permits for free, Europe may hand power companies windfall profits of up to 71 billion euros—about $100 billion—and undermine the fight to curb emissions.
The money’s coming from somewhere, of course. Unfortunately, that somewhere is ratepayers.
Utilities say that’s only natural, reflecting the “opportunity cost” they incur in not being able to sell their permits into the market. Critics, including some European investigators, allege the utilities are grabbing “windfall profits.”
In Germany, for example, where coal makes up 70% of generation, and utilities pass on prices to consumers while lobbying for free permits, the windfall over the next four years could be between 15 billion euros and 34 billion euros.
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That’s why Europe plans to sell the permits starting in 2013—though several countries and many utilities are screaming to keep the free handouts.
It might be of some concern then, that the Western Climate Initiative’s draft proposal says that it may auction as little as 25 percent of its allowances. Most of the unauctioned permits would generate windfall profits for companies, just as they did in Europe. We’d be formalizing the right for corporations to pollute; and then we’d be paying for the privelege.
But with all that money on the table, it’s not surprising that Western utilties and industries are acting just like their Continental cousins: screaming to get free handouts. Heck, I’d be screaming for them too if I thought I could get ratepayers to send me a check for $100 billion.