I think there is a little confusion about a permit auction. Basically, the emitters will have to turn in a permit for every ton of carbon they release. However, the cap says that only X amount of tonnes of carbon are acceptable. So, at the beginning of the year, everyone that wants to emit carbon has to buy enough credits to do it. There won’t be enough, so the initial price will be set by what level the market is willing to pay to emit that carbon that year at that cap level. Once they cover their bases, they might find out that be investing in efficiency they might be able to reduce more than they thought…and they can sell their extra credits to someone who hasn’t been as efficient or careful in managing their costs. So 100% of the credits will be in the market at the beginning of the year with an auction. You don’t need to give a single one away to kickstart trading.

Also, if we wanted to insulate the polluters from bearing any costs (not my priority, trust me) you would allocate them for free somewhere between 9-20%. So 76% is somewhere between the polluters making 4-8X in pure profit from consumers from what this legislation would cost them. That is the calculus of windfall profits.

I wonder where the 76% figure comes from? It seems so specific. It might be an indicator of some really fantastic analysis.

Although I agree in principle with your point about the initial allocation of permits under a trading scheme, the point is inconsistent with the economics of trading permit regimes. You know that it’s all about incentives for firms. I agree, auctions are fantastic. However, you do want to give away some amount of permits in an amount that is equal to the minimum number of traders you need to adequately set a price for permits (unless the government dictates a price, which defeats the whole “let the market decide the price” of our future vibe behind permit systems). So to kick start the whole thing, how many permits do you need to give away? Who knows, we should ask the Pew kids. They love this shit.

Yeah, 76% seems a little high, and they’re going to phase that out in a year or two, right? If not, they better, otherwise it messes up the whole system and yeah, becomes a big win for the polluters.