Climate Cap-and-Trade Schemes as Corporate Welfare

Yesterday, the Goracle (as Dana Milbank of the Washington Post affectionately refers to him), otherwise known as the former Vice-President, Nobel Peace Laureate, and Oscar-Winner Al Gore, testified before a Senate committee on the dangers of man-made global warming. Among other things, Gore told the committee:

If Congress acts right away to pass President Obama's Recovery package and then takes decisive action this year to institute a cap-and-trade system for CO2 emissions - as many of our states and many other countries have already done - the United States will regain its credibility and enter the Copenhagen treaty talks with a renewed authority to lead the world in shaping a fair and effective treaty. And this treaty must be negotiated this year. Not next year. This year.

Gore was talking about the United Nations' global warming treaty negotiations that are supposed to be wrapped with a new agreement at the end of this year in Copenhagen, Denmark. Currently, the treaty negotiations aim basically at extending the cap-and-trade model of the earlier Kyoto Protocol. People who are concerned about global warming should seriously rethink their support of cap-and-trade schemes. As the Guardian explains, Europe's emissions trading scheme (ETS) is very profitable for some corporations:

Britain's biggest polluting companies are abusing a European emissions trading scheme (ETS) designed to tackle global warming by cashing in their carbon credits in order to bolster ailing balance sheets.

The sell-off has helped trigger a collapse in the price of carbon, making it cheaper to burn high-carbon fossil fuels and leading to a fall in the number of clean energy projects…

"This [ETS] was not designed as a scheme to give corporates cheap short-term funding options in the face of a credit crunch meltdown where banks are not lending, but that appears to be what's happening," said Mark Lewis, a carbon analyst at Deutsche Bank.

Really? Lewis and environmental activists exhibit such charming naivete, don't they? The Guardian continues:

The sell-off of the pollution permits has led to carbon prices plunging 60% – from over €30 to around €12 per tonne.

The EU's emissions trading scheme was set up as a market solution to cut greenhouse gas pollution from industry. Polluters were issued with permits that can be traded between companies and countries as a way of encouraging an overall reduction in carbon output. However, companies are now cashing them in for their own financial benefit…

A study commissioned by the WWF environmental organisation from Point Carbon, published in March last year, estimated that "windfall profits" of between €23bn (£21.4bn) and €71bn would be made under the ETS between 2008 and 2012 on the basis that the price of carbon would be between €21 and €32. Up to €15bn could be made by British companies that were given credits they did not need.

Earlier this month, the U.S. Climate Action Partnership, a group of coporations and national environmentalist organizations, released their proposal for a similar cap-and-trade scheme for this country. As I reported, this coalition of Climate Change Baptists and Bootleggers favors giving out at least some emissions permits for free. As a 2007 report from the Congressional Budget Office pointed out:

…giving away allowances could yield windfall profits for the producers that received them by effectively transferring income from consumers to firms' owners andshareholders.

Interestingly, Sen. Bob Corker (R-Tenn.) suggested to Gore during the hearing that a better proposal would be to impose an across-the-board carbon tax which would then be reimbursed entirely by cutting the payroll tax. However, it's hard to imagine Congress being able to resist keeping its hands off of any such new revenue stream.