Friday, July 3, 2009

On cap and trade

My letter to the editor of the NY Times today should not be taken as an endorsement of the government giving away most of the carbon permits, as is proposed in the House bill. I'm a strong believer in auctioning as a relatively efficient way of enhancing government revenue. Nor do I endorse the bill's inadequate reduction targets. Still, the news article in the Times simply got the effect of a permit giveaway on emissions prices wrong.

To the Editor:

The claim that giving away permits keeps the price of emissions low reflects a fundamental misunderstanding of how cap-and-trade programs work (“House Backs Bill, 219-212, to Curb Global Warming,” front page, June 27).

The price of emissions, and therefore the effect of the program on fuel and energy prices, will be determined by the total supply of permits (the cap), not by how they are initially allocated. Consumers will have to pay the price either way, as well they should, for their contribution to greenhouse gas emissions.

William A. Sundstrom
Santa Clara, Calif., June 30, 2009

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