Wednesday, April 16, 2008

Climate change: allocating the windfall

Today's IFR has a story about the government expecting a $13 billion windfall from its emissions trading scheme. Some of the article is deeply confused, claiming that this will be the result of unused credits at the end of the Kyoto Protocol's First Commitment Period - something highly unlikely to be the case, given that we are well in excess of our Assigned Amount (or, in English: there won't be any unused credits). But that said, there will be a windfall. The government is creating emissions units, and these are valuable. Someone will therefore be making at least a paper profit from them. The question is who?

Unsurprisingly, the National Party thinks it should go to their mates in the business community, though wider free allocation (yet another example of their meta-policy of looting the state). And unsurprisingly, I disagree. The government will be creating these profits through the ETS, and it seems only fair that they be used for public purposes rather than lining private pockets. Ideally, I'd like to see any revenue recycled to fund other emissions reductions, but it can always be used to fund services or offset other sources of revenue instead (thus producing the classic environmental double dividend). What I would not like to see is the European situation, where free allocation of credits saw polluters capture the entirety of the windfall, and laugh all the way to the bank. That does nothing to build public confidence in the ETS among consumers facing higher energy prices, and it does nothing to punish polluters.