WSJ reports that industries are pushing for free pollution credits. This is a huge giveaway from the government to the industry if it happens, with the consumer paying the difference in costs anyway. Since the motivation is clearly political, one option is to have the give away a small portion, say 20% of the credits for free, and have them phased out on an annual basis in the next 5-10 years. This could result in securing the votes necessary to pass the deal, and have the expectations set for the rent-seekers in the industry that their rent is going away in the near future. Of course, Congress has a checkered record in dealing with sunset provisions, so perhaps it is not viable.
Alternatively, the government could auction 100% of the credits, and give the producers cash (from the proceeds) which would clearly be unpopular in the long run, and politically indefensible (or at least less defensible, considering farm subsidies are not that different, and they have been around for a while).
Either way, the cap and trade legislation is an excellent Economics 101 primer. A somewhat technical analysis of this legislation is provided here.
Alternatively, the government could auction 100% of the credits, and give the producers cash (from the proceeds) which would clearly be unpopular in the long run, and politically indefensible (or at least less defensible, considering farm subsidies are not that different, and they have been around for a while).
Either way, the cap and trade legislation is an excellent Economics 101 primer. A somewhat technical analysis of this legislation is provided here.
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