Washington Senator Maria Cantwell just came out in favor of “Cap and Dividend”—a system for curbing global warming gases by auctioning off a limited and declining number of carbon “permits”. Good for her—we think that Congress should give Cap and Divident a close and sympathetic look. But one aspect of this Tacoma Tribune article on Cantwell’s announcement is simply baffling; either Cantwell is confused or the newspaper is…
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Here’s how the news report describes Cap and Dividend:
It’s a relatively new approach that would eliminate the trading of emissions credits. The idea is for the government to cap carbon dioxide emissions. Companies that emit carbon dioxide would have to buy emissions allowances or permits.
The money the government raises by selling the allowances could be rebated to taxpayers in the form of dividends.
That’s about half wrong. As it’s normally described, Cap and Dividend would allow trading of permits. In fact, Cap and Dividend would work just like any other form of Cap and Trade. What’s distinctive about Cap and Dividend is that it would auction off all permits, and give the revenue back to citizens on an equal per capita basis. The tradeability of permits is an entirely separate issue from the auction-plus-rebate design that is the essence of Cap and Dividend.
Here at Sightline, we’re scratching our heads about how “untradeable” permits would work, either in theory or in practice. Proponents of the idea are concerned about the risk of speculative price runups in a poorly designed market. But as far as I can tell, untradeable permits could increase the potential for speculation and windfall profits. (More on that here.)
You’re right that the tradeability of permits is separate from the auction-plus-rebate design, but that doesn’t mean permits HAVE to be tradeable. It’s perfectly possible—and not unusual—to have non-tradeable permits. Think of building permits, dumping permits, parking permits, driver’s licenses, marriage licenses, fishing and hunting licenses. None of them are tradable. The people who buy these permits either use them or lose them. The same could be done with carbon permits.If you had non-tradeable carbon permits, you’d need to have frequent auctions so that companies that need permits can buy them as they need them. But this is certainly doable. You could have monthly or quarterly auctions at which you sell permits that are valid, say, for 1 or 2 years. That gives companies that actually need permits plenty of flexibility in acquiring and using them. For a discussion of this see James Boyce’s blog, ‘Cap and No Trade’ at http://www.capanddividend.org/?q=node/233.