Who's going to get the carbon pollution credits?

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One of the newest parlor games in Washington is figuring out who will get a slice of more than a hundred billion dollars' worth of carbon credits contained in energy and climate-change legislation emerging in Congress.

That game sloshed into Boston Monday afternoon with Obama energy czar Carol Browner, presidential science adviser John Holdren, and US Rep. Ed Markey, D-Mass., coauthor of new energy-climate legislation, telling a packed auditorium of MIT students, faculty, and business executives that their efforts were critical to solving the major problem facing the world: climate change.

Global climate warming and US energy security are connected, they said, by the need to sharply curb the burning fossil fuels to make electricity and drive vehicles to reduce carbon dioxide emissions.

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"The energy challenge we face is actually a more difficult challenge than putting a man on the moon," Dr. Holdren said. "We have to do things that pervade our whole economy – and not just in this country but around the world – in order to get it done to the degree that is required. So it will take more than an Apollo program, more than a Manhattan project that produced the first nuclear weapons to get this done."

Significant federal investment in research and development would be needed to make the transition to renewable energy and other technologies including fusion and nuclear power, Holdren said, noting that such spending had in recent years been "pathetically small."

Ms. Browner, who is charged with coordinating energy and environmental policy across the federal government, said that difficult environmental problems had been met successfully before.

"In each case, there were those who said it would cost too much, it couldn't be done," Browner said. "But in each case American innovation and ingenuity proved them wrong."

Touting the power of market-based initiatives to stimulate change, Ms. Browner noted that by banning ozone-depleting chemicals used in refrigerating equipment, "we created a market opportunity, created incentives. So what happened was that in record time and at far less cost than anticipated, we had a replacement."

When Congress required capturing sulfur dioxide to limit acid rain, "a lot of people worried that this idea was too complicated," she said. "We had never done it. It would put too heavy a burden on business. But through the use of market mechanisms, we were able to find the most cost-effective way to reduce the problem. The actual price per ton of SO2 reduced in our environment, again, has been far less than anyone anticipated."

Likewise, putting a price on carbon is key to shift to renewable energy and avoid the worst impacts of climate change, Mr. Markey said as he fielded audience and media questions on the volatile subject. He and Rep. Henry Waxman (D) of Calif., released details two weeks ago of a new draft discussion bill that would deal with climate and energy together.

"We do create a market for carbon credits which is similar to the one which exists in Europe right now  – and we think it can work, and that way, the markets can make a determination. Rather than the Congress trying to pick a price they think will work, the market will do that."

A curious omission in the legislation is that it makes no mention of how carbon pollution credits generated under the new "cap-and-trade" legislation would be allocated  – a point not missed by audience members such as Jeff Seth Kaplan of the Conservation Law Foundation. He questioned how the carbon emission "allowance" credits for each ton of carbon dioxide pollution would be allocated – and whether they would all be auctioned as the administration has said it prefers, or not.

Environmental groups generally have opposed allocation of credits to polluting industries, saying they should be made to pay for them instead.

"I just want to put you both on the spot in terms of where you see things going in terms of how quickly we're going to get to 100 percent auction of allowances," Mr. Kaplan said to Browner and Markey.

Markey leaped to reply. "On the question of the auction, initially at least, we have to set aside a certain amount of the carbon credits to ensure that the steel, paper, and other trade-sensitive, energy-intensive industries are not exploited in the near term by the Chinese and others in terms of them taking advantage of this increased cost," he said. "As a result, right off the top we cannot auction off all of the credits."

In addition, he said, the some credits were needed to soften the blow to consumers to protect them from price spikes.

"We can't have all the credits auctioned off immediately," he said. "But in the long run, that will be our goal – to set this cap and lowering the amount of carbon year after year. That will be the goal, but we need a transition period of time. There's a bit of perestroika going on right now where we want to change the old world, but we have to invent this new world."

Markey's comments follow Holdren's comments last week to The Washington Post in which he admitted the administration was weighing a delay in auctioning 100 percent of the greenhouse gas emissions credits or "allowances" from a cap-and-trade program.

"Whether you get to start with [a 100 percent auction] or get there over a period of time is something that's being discussed," Holdren told the Post.

That would bring the administration more into line with the views of some companies in the US Climate Action Partnership, which have talked about a 10-year period before moving to a 100 percent auction of carbon dioxide emissions allowances. And that has some environmentalists upset.

"Giving away allowances would be a huge sweetheart deal for polluters," Liz Perera of the Union of Concerned Scientists, an environmental group, said in a statement. "Worse, freebies for polluters would come at the expense of energy efficiency and renewable energy programs that would benefit the public." Electric utilities and other polluters have been "pushing for free allowances so they can delay cutting their heat-trapping emissions, but we've already had enough delay," she said.

Holdren did not comment on the auction of carbon credits at MIT, but ducked out to catch a flight. Markey continued the heavy lifting on that question and seemed to imply that allocation of some free allowances would be a necessary carrot to win support for the legislation in Congress.

"We're going to determine exactly how many of the credits are going to be auctioned in conversation with members of the committee," he said. Another pool of allowances would be a "strategic reserve" to be used as the administration sees fit.

The stick needed to press Congress forward could come from the soon-expected announcement by the EPA that carbon dioxide emissions are a danger to human health and the environment, he indicated. Such a finding could open the way for EPA to regulate motor vehicle and power plant emissions to limit carbon dioxide.

To a question about whether EPA action to regulate greenhouse gas emissions would motivate Congress, Markey was unambiguous.

"I think [the prospect of EPA regulation of carbon dioxide emissions] has become a very real factor in our deliberations," he said. "If Congress doesn't act, then clearly there is a residual decision by the US Supreme Court for the EPA to regulate greenhouse gases. The only way to avoid that is to have Congress act.... It becomes a real factor."

Added by editor on Wednesday, April 15: According to this, a climate change announcement is due from the White House tomorrow.

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