The American public has finally realized that we need mandatory caps on carbon emissions. Even many energy companies are pushing for mandatory caps. Why is this? It's not just a public relations stunt. They know that the sort of mandatory cuts proposed by the Lieberman-McCain Climate Stewardship Act will give them large windfall profits if enacted.

The Act gives some emissions permits away to past polluters and auctions others off. The problem is the permits that are given away. As noted by many economists, including the Congressional Budget Office, prices of energy intensive goods will rise regardless of the proportion of permits that are given away or sold. The difference is who benefits from the value of the permits. The value of permits that are given away goes to the energy companies that receive them. The value of auctioned permits can best be used to lower income taxes, stimulating the economy and thereby reducing the damage from the increased energy prices. Auctioning the permits also reduces the government’s discretionary powers relative to giving them away, eliminating a source of corruption.

Support mandatory market-based limits on greenhouse gas emissions. Do not support the corrupt, inefficient, and needlessly complicated Climate Stewardship and Innovation Act of 2007. Instead, we should auction all permits and use the proceeds to lower taxes. Note that I am NOT recommending any of the other bills currently under consideration; we need to start from scratch with a bill that takes economic theory into account.

For details see:

• My 2-page description of issues in policy design: http://www.cs.brown.edu/~ws/climate_short.pdf
• My 20-page discussion of climate change and policy options: http://www.cs.brown.edu/~ws/climate_change.pdf
• National Academies of Science summary of the science: http://dels.nas.edu/basc/Climate-HIGH.pdf
• One of the Congressional Budget Office (CBO) reports that Congress is ignoring: http://www.cbo.gov/showdoc.cfm?index=4171&sequence=0
• The Climate Stewardship Act: http://thomas.loc.gov/cgi-bin/query/z?c110:S.280:

Warren Schudy - ws at cs dot brown dot edu

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