Free Allowances under the Climate Bill?

Revisions are being proposed to the Waxman Markey Draft Climate and Energy Bill as the bill makes its way through committee in the U.S. House. This bill, among other things, would create the first mandatory nation-wide green house gas (GHG) cap and trade program in the U.S. Whether the compromises being made in committee will be enough to create an alliance strong enough to get the bill passed this session remains to be seen.

One of the most important discussion points still being worked on is how allowances, potentially worth millions of dollars, will be distributed to those regulated under the bill. President Obama has consistently taken the position that all allowances should be auctioned off, and has included money from those auctions in his budgets. Utility companies testified that 40% of the allowances should be distributed free of cost to the regulated industries. Free distribution of any large portion of the allowances would significantly reduce the cost of the remaining allowances, thereby reducing the impact on the overall economy, but making business as usual more probable and slowing the effect of the bill on nationwide climate emissions.

The EPA has forecasted that carbon will sell for $13-$17 by 2015.

-- Jeff Reed