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Energy Secretary Chu Pledges to Work with Congress on Cap-and-Trade System

chu2At a Senate Energy and Natural Resources Committee hearing March 5, Department of Energy Secretary Steven Chu promised to work with Congress to implement President Obama’s cap-and-trade system to curb greenhouse gas emissions.

Under the system, a cap on carbon emissions would be imposed on U.S. power plants, oil refineries and other industrial sites, which then could bid at auction on permits to exceed those limits. Plants which decrease emissions could sell their permits to other facilities that pollute more.

Passing Obama’s plan as he envisions is not likely to be a walk in the park.

New Mexico Democratic Senator Jeff Bingaman, chairman of the energy panel, has indicated any Senate climate bill would not likely adhere to the strict auction plan for permits, which he says is too harsh on industry. Bingaman suggests that Congress develop a cap-and-trading emissions system with carbon allowances provided to polluters like cement factories and coal-burning power plants, along with permits that are sold.

Giving away allowances may prove counterproductive, however. In the European Union, the Emissions Trading Scheme, in addition to setting a cap that some say was too high, gave away a first round of emissions permits to polluters. This resulted in a transfer of wealth to the polluters, and eventually caused   a glut of permits on the market.

President Obama’s budget proposal calls for significant revenue from cap-and-trade auctions.

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2 thoughts on “Energy Secretary Chu Pledges to Work with Congress on Cap-and-Trade System

  1. The next to last paragraph, as is often the case in articles like this, mistakenly conflates the issue of the level of the cap with the issue of how the allowances are allocated. It is time for reporters to learn to get this straight. PHase I of the EUETS has been criticized for 2 different things. First, the cap was set too high, which is why the price collapsed. Second, the allowances were given away rather than sold, which transferred a large chunk of wealth to the shareholders of power companies (and gave up some possible efficiency gains). These are two separate issues. The glut did not result from the decision to allocate the allowances for free. It occurred because there were too many allowances relative to the demand. If anything, auctioning allowances would have made the glut worse by resulting in the shut down of some marginal generators.

  2. So one just has to wonder if the “revenue” from this cap and trade program will ever payback the $13.5 Billion LOSS President Obama and Secretary Chu just handed the nation by stopping the use of Yucca Mountain as a storage site for nuclear waste and effectively eliminating the last hope of a renewed clean-energy future from advanced nuclear power plants.

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