From Giveaways to Charitable Donations: Stavins on Carbon Permit Allocations

For the life of me, I can understand why intelligent, well-educated people end up in the sort of conceptual morass that Robert Stavins finds himself in. In his latest post, Stavins accuses a group of Republican senators of misunderstanding the benign nature of Boxer-Kerry’s carbon permit handouts. This isn’t a giveaway, he says, it’s an honorable contribution to honorable recipients. No doubt these senate holdouts are confused about a great many things, but in this instance it looks like they are basking in enlightenment and Stavins is the clueless one.



To arrive at his judgment, Stavins lumps together the bulk of the free allocations and says, “about 80% of the value of allowances [accrue] to consumers, small business, and public purposes.” Hmmmm. So free handouts to electrical utilities are actually benefits to users? So what gets people to reduce their consumption of electricity in order to meet the carbon caps—brownouts? (Actually, it’s a non-problem because the caps will be illusory—more in a moment.) And giveaways to small businesses aren’t giveaways? And giveaways to businesses in return for getting them to do things more in accord with “public purposes” aren’t giveaways? You could say they are good giveaways to very nice people, but Stavins doesn’t want to defend that position. I don’t blame him.

Still, Stavins admits that handing out carbon permits for free is not the best option. He would prefer using them as government revenue, allowing us to cut other taxes. Since he thinks the efficiency of our economy is hampered by “distortionary” taxes, this would be all to the good. Of course, carbon auction revenues constitute a sales tax, and bear the original sins of such taxes—regressivity and volatility. And nothing more than libertarian ideology supports the view that progressive income taxes are economically harmful. A number of European countries tax at much higher rates than we do and somehow manage to maintain high levels of productivity and income, and even run trade surpluses against lower-taxed America.

Ultimately, if I thought this bill would really protect us against catastrophic climate change, I might overlook a few hundred billion dollars of special interest theft. You have to set priorities. But the loopholes elsewhere in the package, particularly the system for allowing carbon emitters to buy their way out with offsets, will guarantee that targets set for 2020 will not even come close to being realized. From a political standpoint as well, there is no way the bill can squeeze users of carbon fuels enough to get the job done, since almost nothing is allocated to protect household budgets. Imagine a program that deliberately pushes gas, oil and coal prices much higher than they have ever been before and gives nothing back to most households. Imagine being a politician who has voted for this program and has to face the next election.

And Stavins thinks that senators who refuse this kool aid are confused?