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New Proposed Climate Change Bill in Washington Is Simpler and More Equitable

Happily, a new climate bill drafted by Sen. Maria Cantwell may change both the nature of the debate and its outcome.

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Auctions vs. Allowances

Focusing upstream allows Cantwell to avoid this administrative swamp. It also allows her to do what Waxman-Markey should have done: require carbon polluters to pay for their pollution. CLEAR requires carbon producers to buy 100 percent of the carbon shares they need. None are given away. Waxman-Markey, on the other hand, gives away 85 percent.

The Cantwell way of dealing with the question of how U.S. companies that must use more expensive fuels can compete internationally is also much simpler and transparent than that contained in the Waxman-Markey bill.

Here's a brief summary of the Waxman-Markey strategy: U.S. exporters will receive free carbon allowances in the form of rebated charges for 2012-2025. Under certain conditions, U.S. producers of finished goods could also receive rebates, if producers petition for coverage and the EPA determines they meet statutory criteria and should be covered.

The EPA would create a pool of international reserve allowances separate from the allowances domestic entities must use to comply with their cap-and-trade obligations. Importers must purchase 85 percent of these allowances from countries that have an emissions-reduction commitment as stringent as that of the U.S.. There is an exemption from this provision if the country is listed by the U.N. as a "least developed" developing country, or if it is responsible for less than 0.5 percent of global emissions.

Got all that?

Here's how CLEAR addresses the same problem. Impose fees on the carbon used in production processes for commodities imported into the U.S. Lift the fee for countries that have adopted comparable limits to fossil carbon use. Sounds easier, right?

Limited vs. Unlimited Trading

CLEAR allows for carbon trading, but unlike Waxman-Markey, which creates an elaborate -- some would say Byzantine -- carbon-trading architecture that promises much mischief, CLEAR puts significant limits on trading.

As befits a congressional leader who has fought against speculation and price manipulation in the energy and financial markets, Cantwell has included in her bill many mechanisms to prevent hoarding and speculation. There are monthly carbon auctions. Carbon shares expire after two years. No entity can buy significantly more carbon shares than it needs. Any sale of carbon allowance must be offered to an eligible "first seller." All relevant transaction dates, carbon share quantities and prices must be made available publicly.

Universal Refunds vs. Set Asides

Still another fundamental difference between Waxman-Markey and CLEAR is revealed in their approaches to the equity issue.

Restricting carbon will raise carbon prices, and thus general prices. This will disproportionately burden the poor. Waxman-Markey deals with this by setting aside 15 percent of the carbon allowances to assist households that can prove they are sufficiently poor.

CLEAR makes consumer equity a central consideration rather than an afterthought. Three-quarters of the proceeds from the carbon auction will be refunded on an equal per capita basis to any legal resident of the U.S. The remaining 25 percent will go into a fund that can be used for many purposes: clean-energy development, compensation for dislocated workers, climate-change mitigation and adaptation.

The creation of a direct per capita refund achieves several ends.

In terms of equity, the refund will offset the pocketbook impact of any energy price increases for most low- and moderate-income households. Indeed, my colleague John Bailey at the Institute for Local Self-Reliance has estimated that the net impact may well be redistributive, because the poor use less energy and buy fewer carbon-intensive goods than the rich. Thus, any increase in carbon-related prices would be more than offset by the receipt of their carbon-related dividends.