Most parents are probably familiar with this whine, beginning shortly after a younger sibling learns that his or her older closest friend/mortal enemy has begun receiving cash from Mom and Dad on a regular basis.

We’ve been hearing a variation on that theme playing out in the US House of Representatives for the past couple of weeks, as committee chairs Henry Waxman (Energy and Commerce) and Collin Peterson (Agriculture) try to overcome Peterson’s opposition to the Waxman-Markey energy and climate bill.  Peterson’s concerns need to be addressed, because if he and his Democratic colleagues on the House Agriculture Committee all vote against the bill (the Republicans are sure to already), then it will not pass the House.

And what has that to do with allowances?  Well, in this context an allowance is a permit to emit one ton of carbon dioxide equivalent (or CO2e for short — the standard measure for greenhouse gases).  As readers of this page may know, there are only a few likely effective ways to reduce the emission of greenhouse gases that contribute to climate change.  One is to cap the aggregate level of emissions allowed and then require emitters to submit permits, or allowances, for each ton of CO2e they emit.  Since the government controls how many permits are printed, it can theoretically keep the overall level of emissions within the cap — or at least penalize those who emit beyond their permitted level.

If we take it one step further, and the government allows emitters who reduce below their permitted level to sell their allowances to those who find it cheaper to buy allowances than reduce emissions, then we have the “trading” component of a “cap and trade” system in place.

This all would work just fine, in theory, if the government simply auctioned off the allowed number of permits and then stepped back to let the market function.  But of course, given that there’s a market here worth somewhere above $40-100 billion, Congress isn’t going to let well enough alone.

In order to get political support for his bill, Waxman decided to legislate the give away of allowances to utilities — at least in the early years of the program — there’s a requirement that more be auctioned in the future (we’ll see).  And even utilities who have a diverse portfolio of low and high emitting power generation wil get allowances.  Since the easiest way for those utilities to reduce emissions is switch their load from coal to natural gas or nuclear, they’ll effectively get a windfall in allowances that they can then sell to their coal-heavy brethren (if the economics of doing so make sense, of course).  Now, we won’t get into the merits of this approach in detail, because our point here is that once you decide to start giving away allowances, human nature takes over and folks start lining up to get their share, fair or otherwise.

Which brings us back to the epic battle between Waxman and Peterson.  Among Peterson’s problems with the bill is this allowance allocation scheme.  His constituency includes rural co-operatives that generate electricity largely from coal combustion.  They will, under this approach, likely need to purchase allowances from other utilities who have more natural gas and nuclear in their portfolio.  As it happens, in Peterson’s formulation, this is taking money from middle America and giving it to utilities “on the coasts.”  (Waxman’s from California, and Markey represents Massachusetts — ouch!)

How this will all play out is anyone’s guess, but it is a tragedy that while oil prices begin their steady rise (again), the House is arguing over allowances for future greenhouse gas emissions.  There’s already not much energy security in the Waxman-Markey “American Clean Energy and Security Act.”  Holding what little there is hostage to this rent-seeking squabble over allowances is truly unfortunate — and doubly so since it could have been avoided with better design.

So, what to do about that whining for an early allowance?  This parent says, “just say no” — to both sides – and put forward a more honest program that doesn’t rely on give aways and rent seeking.

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