Politicians and Lobbyists Profit, We Lose

Henry Waxman is allowing insider politics (dare I say lobbying and campaign contributions?) to ruin one of President Obama's key campaign pledges. Instead of auctioning off all of the carbon emission permits, the vast majority (85%) will be given away to select corporate interests. In direct contravention to earlier campaign pledges (see the first bullet, "100 Percent Allowance Auction", and administration statements, such as this one by budget director Peter Orszag to the House Budget Committee:

"If you didn't auction the permit, it would represent the largest corporate welfare program that has ever been enacted in the history of the United States" ...

"All of the evidence suggests that what would occur is that corporate profits would increase by approximately the value of the permits."

Not only is this bad policy, fattening polluters profits, is costs us money, as the WSJ notes:

Without the auctions, there isn't any revenue. Mr. Obama's budget proposal projected more than $75 billion a year from the auction...

Now, one might argue that Waxman hopes that state regulators will hold the line on corporate profits. No. He's just spreading the lobbying loot around to them as well. Well, I guess it's job creation - time to apply for a lobbying position at a utility company.

We have direct, recent evidence of exactly what will happen:

Consider the example of the European Union's Emissions Trading Scheme (ETS). Launched in 2005, the ETS cap-and-trade scheme handed out nearly all of its emissions permits gratis. The result was windfall profits for emitters and higher energy prices for consumers, and, until the advent of the global economic recession, almost no reduction in carbon dioxide emissions.

Will giving away the permits save consumers money since utilities won't "pass on" the fees? No. As elegantly illustrated in this analogy by economists James Barrett and Kristen Sheerhan

Try buying World Series tickets from a scalper. Would he charge you any less if he found the tickets on the ground? Of course he wouldn’t. Like energy, the street price of World Series tickets is based on supply and demand.

Even a republican global warming sceptic, Joe Barton (R-Texas) agrees.

"If you're going to do it, I support the auction because I think that's more equitable," Barton said last week in an interview. "The whole point of it is to try to reduce the amount of what it is that's being auctioned. And the way to do that is to charge for it, and not give it away."

Long term readers of this blog know that I'm no far-left progressive corporation / lobbyist hater. Nor is the Wall Street Journal, initial source for much of this article. But I do support a cleaner environment and smart, efficient policy that benefits all of us, not just corporate lobbyists and career politicians. Waxman's plan is bad policy that Obama should change, or, failing that, veto.