Part 4 of my weeklong series, "Hey, what did I miss around here?" (CBO study casts doubt on CO2 caps):
The Congressional Budget Office is expected to give its analysis of cap and trade today (ed: Nov 1). The office plans to say that there is a strong case for treating the permits, when first created, as federal revenue raised. If the permits are given to companies free of charge, that should be treated as spending, it will argue.
No cash would actually enter or leave the government's coffers in such a case, but the analysis bolsters the assertion that giving away permits amounts to a subsidy for polluters -- in effect, that there is a cost to taxpayers. The office says that the subsidy theoretically could be worth $50 billion or more a year, based on the value that such permits might have when traded on an open market.
The nonpartisan budget office is also expected to say that cap and trade, like a tax, might result in a quick hit to consumers' wallets. Its analysis finds that companies would still raise prices even if the permits were free because they would factor in the cost of using the permit versus selling it to another firm for a profit.
Some environmentalists, economists and consumer advocates have argued that the government should auction permits immediately and use the proceeds to offset higher energy prices through tax cuts or other relief.
The (Leiberman-Warner) America's Climate Security Act, and the others floating around, plan to auction about 20% of the permits initially and crank the percentage up gradually. Giving firms a transition period and reducing the scary uncertainty created by a 100% auction makes sense to me. However, offseting higher energy prices is exactly the wrong thing to do. Higher energy prices encourage reduced consumption of energy, isn't that what we're after? Now, spending associated with a tax cut is not likely to increase the demand for energy so that the reduced consumption from higher prices is offset. But the "other relief" for higher energy prices sounds scary-inefficient.