What Should We Do with the Revenues from Cap-and-Trade?

More on cap-and-trade from Robert Reich:

Why Revenues from Cap-and-Trade Should Be Returned to Us As Dividends, by Robert Reich [originally here] ...[To address global warming,] Barack Obama is on record in favor of cap and trade. And so, significantly, is John McCain.

So it's a certainty that we'll have a president next year who wants to address global warming by imposing an overall cap on U.S. carbon emissions, which will drop annually. The "trade" part ... would allow companies finding efficient ways to cut emissions to sell the unused portions of their permits to others. Obama’s proposal is more ambitious than McCain’s in terms of how fast the overall cap would drop.

But the biggest difference between McCain and Obama is how the permits would be allocated. McCain’s proposal would initially give out most of them for free to the nation’s biggest emitters of greenhouse gases. This does have some logic to it: after all, as the overall cap tightens each year, the biggest polluters will face the largest challenges in cutting emissions.

By contrast, Senator Obama has proposed allocating the permits through an auction. Under his proposal, every company ... would have to buy the rights to emit greenhouse gases. As a result, the biggest emitters would have to pay the most - thereby providing them with the greatest incentive to cut emissions right from the start. In economic terms, such a carbon auction is the equivalent of a carbon tax, and it make more sense than a system that allocates permits on the basis of how much greenhouse gas a company or industry already emits. Companies and industries that impose the largest social costs in terms of such emissions should be given the greatest incentives to cut costs right from the start.

Moreover, carbon auctions invite far less political maneuvering. Setting initial allocations by emissions, as McCain wants to do, invites every big corporation and industry to fight for the biggest possible allocation and claim the largest emissions. Despite John McCain’s avowed determination to reduce the influence of lobbyists in Washington, the resulting free-for-all would be a bonanza for K Street. And there’s no reason to suppose the outcome would bear any resemblance to the public interest. ... This is one reason why cap-and-trade hasn't worked very well in Europe so far. ...

But carbon auctions raise another problem when it comes to Washington. ... Lieberman estimates that the market value of all permits under his bill would be about $7 trillion by 2050. That sum would go into what Lieberman calls a Climate Change Credit Corporation, which, operating outside the budget process, would invest in various plans for developing alternative energy. You can bet that lobbyists for ethanol, nuclear, and so-called “clean” coal are already salivating...

That's why it's important that all revenues from carbon auctions be cycled back to citizens. And rather than launch another endless debate over how and to whom – a payroll tax cut for people earning under the median wage? a cut in capital gains? – it would be well to agree to the simplest possible formula: Every adult citizen should receive an equal share. If the carbon auction yields $150 billion in the first year, for example, each of America’s 150 million adult citizens should receive a Treasury check of $1000.

Such direct and simple repayments – what analyst Peter Barnes, who has been pushing this idea, wisely calls “dividends” – deal with another problem. Although the balance of economic studies suggest that the cost of a cap and trade system will be modest, ... inevitably some costs will be involved and be passed along to consumers. The cost of doing nothing about climate change will be far higher. But consumers who are already walloped by high fuel and food costs will be in no mood to accept even modest additional price increases. Hence, ... dividend checks will be a welcome offset. ... Our atmosphere belongs to all of us. It seems only reasonable that corporations should have to pay to use it. ...