Carbon Share- Avoid the Giveaway- Auction is better

Avoid the Giveaway

The Giveaway (sometimes called "Grandfathering") is when:

• Emission permits are given free to historic polluters
• The more a corporation polluted in the past, the more free permits it gets year after year
• The receiving corporations can sell their permits or raise their prices to capture the value of the permits
• Result: windfall profits for historic polluters including energy companies, utilities, and oil companies

The Giveaway has appeared in some previous cap and trade systems, and threatens California's potential to develop a fair system. The Giveaway is not synonymous with Cap and Trade. It is the opposite of Carbon Share.

In California, some environmentalists fear any cap and trade system would result in an Giveaway, and this has led them to oppose all forms of Cap and Trade. Some economists believe that any allocation method other than a Giveaway would destroy California's economy. Neither of these assertions is true.

The outcomes of Cap and Trade systems differ dramatically depending on how emission rights are allocated. Before accepting or rejecting a Cap and Trade system, we must consider how it proposes to allocate emissions rights.

When California decides to allocate the rights to the emissions under the greenhouse gas cap, it has 3 choices in how those rights are distributed:

1) Carbon Share: Distribute rights to the owners of the sky- all of us equally on a per capita basis.

2) Auction: The State could sell the rights to the highest bidder, then use the proceeds to fund public goods such as energy efficiency or renewable energy to reduce more greenhouse gases, or as per capita compensation through a dividend (the "Sky Trust").

3) Polluter giveaway: Polluting companies want to be given the right to pollute for free, and then raise prices anyway. This option has provided windfall profits to oil and coal companies in Europe.

About these options:

1) Carbon Share:

2) Auction:

3) The Giveaway

• The state distributes one carbon share to each resident
• Residents can
- Redeem their share at any bank for cash
– Hold on to their share for future redemption
– Retire their share from the market forever

• Carbon Share provides a cushion against price spikes to citizens, and directs windfall profits to consumers, not polluters.
• Banks sell shares to carbon emitters or importers- any entity that brings carbon into the state.

• Carbon conservers come out ahead, while carbon guzzlers pay more. Good behavior is thereby rewarded.
• Because carbon shares will rise in value as the cap declines, limiting carbon emissions will be politically sustainable.

• Instead of giving away valuable permits for free, the state auctions them for whatever the market will bear
• The state uses the auction revenue for:
- Rebates to consumers
– Investment in new energy infrastructure
– Other public goods

The government auctions oil rights. Why shouldn’t it auction sky rights?
• Auctioning avoids windfalls for polluters.
• Auctioning avoids lobbying for preferential treatment. Every carbon emitter is treated equally.
• With auction revenue, the state can invest in new energy infrastructure.
• With auction revenue, the state can return money to consumers (who will pay higher energy prices).

• There is no public benefit from polluter grandfathering.
• The economic value of the atmosphere is entirely captured by shareholders of polluting corporations.
• Polluters’ windfalls would be so large (and they’d rise as the cap declines) that public support for carbon rationing would collapse.

Which allocation methods support the
public trust?

Public Trust Allocation vs Giveaway:

	Auction with Public Goods Investment	Auction with Sky Trust	Carbon Share	Giveaway
Who gets the emissions rights	Government	Government on behalf of citizens	Citizens	Fossil fuel importers and producers
How are rights allocated, and how are revenues used	Auction to companies, revenues used for public goods, energy efficiency, R&D, transit, etc.	Auction to companies, revenues used for dividend returned to citizens per capita	Free to citizens per capita,then sold at market price to companies	Given to historic emitters for free, no revenues for public trust purposes, all benefit goes to emitters
Allocation aligned with the Commons and Public trust	Yes, assuming government spends money wisely	Yes	Yes	No

Learning from the European Trading System (ETS):

From 2003-2006, Europe's Emission Trading System's Phase I Allocation was based on a Giveaway.

The ETS:
• Grandfathered permits to polluters
• Covers less than half the carbon in the economy (due to a sectoral approach- also known as midstream coverage)
• Does nothing to protect consumers (lacks a per capita rebate, dividend or share)
• Has high administrative costs (this could be improved if they regulated upstream instead of midstream)
• And caps that are too high (this could be improved with an auction instead of a giveaway)

The result is increased prices to consumers, few environmental benefits, and windfall profits to polluters. There are dozens of studies, from Duetsche Bank to the UK's top economists, that conclude that the giveaway allocation in the ETS was a major problem. Companies also overreported their emissions, and bureaucrats overallocated allowances. The ETS is currently undergoing review. A European proposal called Cap and Share is being promoted as a way to improve the ETS. Find out more here.

Who Owns the Sky?

We all do.

The sky belongs to all of us.
• The earth’s atmosphere is a gift of creation
• The atmosphere performs many valuable services:
• waste absorption
• climate regulation
• fresh water replenishment
• UV protection

• If anything is a commons, it is the atmosphere
(we all breathe the same air)
• If the atmosphere has economic value, that value belongs to everyone.

To endorse Carbon Share, click here.

To find out how California can Avoid the Giveaway, click here
.