US climate bill: How to make almost everyone unhappy

“The signs are that if a bill does somehow pass, it will be ugly,” says an FT editorial today of a proposed US cap and trade scheme. The debates around the Waxman-Markey bill, thought to be the best hope of getting a scheme approved, are already turning ugly.

Oil companies are not happy, and neither are some environmentalists. Republicans and quite a few Democrats are also opposed. Some of the political opposition is explained by constituency: those from electorates with more carbon intensive industries are the most likely to be opposed.

But there are also concerns that it will punish American industries in favour of imports, and harm those on low incomes – just to name a few.

More troubling are the mechanics of this particular scheme, how it is funded and how the proceeds will be spent.

Obama’s first budget counted on revenues from auctioning permits to raise $645.7bn by 2019, and proposed to invest $15bn a year on renewable energy investments and $60bn a year on its “Making Work Pay” tax credits for lower income people.

However it is now set to give away some 85 per cent of permits. Making matters even worse, says the FT, is that the bill would attach conditions to these ‘gift’ permits to shield consumers from the costs.

“On the drawing board is a vast and unfathomably complex new system, which fosters corruption, raises little revenue and tries to suppress the incentives that are its entire purpose. Otherwise, it all looks quite promising.”

Estimates of the burden on households of a cap-and-trade scheme vary widely – from net savings of $900 a year per household to a cost of $24,000.

And costs to industry are just as contentious. But if the costs are suppressed, it does seem to defeat the purpose.

Related stories:
Editorial; Cap and trade or coach and horses (FT, 18/05/09)
Climate bill: Plenty of sound and fury in Waxman-Markey hearings (Environmental Capital/WSJ, 18/05/09)
Cap and trade: more data on its effects (FT Energy Source, 07/05/09)
US carbon giveaways, and spending the proceeds (FT Energy Source)
Obama plan has $79bn from cap and trade in 2012 (Bloomberg, 26/02/09)

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