Cap and trade; bait and switch
Posted March 4, 2010 at 8:52 am 
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Much is being made of the prospect of new Senate energy and climate legislation that reportedly will walk away from cap and trade in favor of a new, more politically appealing approach. (A good example is a Greenwire article that also ran in the NYT yesterday http://www.nytimes.com/gwire/2010/03/03/03greenwire-grahams-cap-and-trade-pronouncement-reframes-h-19532.html?scp=1&sq=Kerry%20Graham&st=cse)
That approach is reported to center on a utility-only cap and trade system, with other non-refinery, industrial sources phased into the system over time and then a separate “linked fee” system for refineries. In discussing the shift from “economy-wide cap and trade” to this new approach, reporter Darren Samuelsohn quotes an American Univeristy professor dispensing some wisdom on the play:
“Matt Nisbet, a professor of communications at American University, sees an opportunity for better public debate in the wake of Graham’s comments declaring the end to the broad cap-and-trade approach.
“I think what’s happening politically is we’re moving from a very narrow limited focus on just one option,” he said.
In the past, the longtime focus among politicians and reporters was on cap and trade alone, squeezing out other options like a carbon tax or a cap-and-dividend approach.
“Most of the discussion is not on substance, but rather political viability and the game or jockeying in order to win support,” Nisbet said.”
Now in general, if you’re looking at the CLEAR Act approach offered by Senators Cantwell and Collins or the carbon tax concept floated recently, this time by Senator Murkowski, then yes, those are options beyond traditional cap and trade. The former is a pretty clear cap and dividend, with trading limited to fuel producers. And the latter is, of course, both cap-free and trade-free.
But to say that starting with utilities and then phasing in other emitters (except refineries) is some radical departure from Waxman-Markey or Kerry-Boxer is a bit more spin than substance. Those bills actually do start with utilities first and then phase in, albeit quickly, other industrial sources. The chief difference in the talked-about plan is in the treatment of refineries. Under Waxman-Markey, refineries would be subject to a cap and receive some small measure of allowances — a much smaller share than utilities. Under the pending proposal — at least as described in the press — refineries would not be subject to a cap but instead pay a fee that the government would use to buy allowances.
That has the benefit of clarity and, from a refinery perspective, protection against volatility in the allowance market. The extent to which a linked fee could accomplish the dual purposes of being refunded to consumers and pay market price for allowances is unclear — but then clarity at this pre-legislative draft stage would be unusual. Stay tuned.
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