John McCain Wants a Climate Policy that Primarily Benefits the Rich

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I see John McCain is upset by the fact that Obama wants to auction 100% of cap-and-trade permits. He wants the vast bulk of the permits to be given away to businesses.

There are lots of complicated, obscure issues around carbon policy, but this is not one of them. Let's be very very clear about what this means: McCain favors the interests of industry over the interests of consumers.

This is the giveaway quote: "At this time of economic hardship, it is beyond irresponsible to further raise costs of the operation of this country's businesses."

The alternative, of course, is to raise the cost of living for consumers. It's a clear cut choice.

First, let's clear up a common confusion. McCain says that auctioning permits will "allow for little or no transition into a low-carbon system." That is straightforwardly false: the cap forces a low-carbon system. The cap does the environmental work. How the permits are allocated is not an environmental issue, it's an economic issue. It's about distribution--who pays.

Someone will pay. When the price of emitting CO2 rises, someone pays the increased costs. If costs are raised and no further action is taken, fossil energy providers and fossil-intensive manufacturers will pass along the increased costs--consumers will pay. Giving permits away will not prevent this--consumer costs will rise whether permits are auctioned or given away.

If the government auctions the permits, it raises revenue with which it can offset or erase the burden on consumers: through direct rebates, through investments in energy efficiency (which lower power bills), through investments in clean power that accelerate its availability.

If the government gives away the permits, businesses raise prices anyway, reap enormous windfall profits, and consumers bear the full burden. That's what McCain wants.

I return again to this graph from the Congressional Budget Office:

This charts the distributional consequences of auctioning vs. freely allocating permits. On the left, auctioning. On the far right, freely allocating. (For more, see this post.) As you can see, auctioning (and transferring the value to consumers) benefits the poor and working class, while putting most of the cost burden on upper income quintiles. Giving away permits puts the burden on the bottom four quintiles and overwhelmingly benefits the most wealthy.

That's what McCain is advocating for: a system that primarily benefits the very wealthy.

Don't be misled by all the rhetoric: This is a classic dispute between the left, which thinks economies prosper when more wealth is in the hands of the poor and middle class, and the right, which thinks economies prosper to the extent they benefit the rich.

Comments

[trimom]

02:53 PM on 04/28/2009

McCain has repeated said that cap-and-tr­ade should not provide revenues to the government­. That says it all... He doesn't think that the program should place a burden on emitters in any way.

His proposal is all smoke and mirrors with giveaways and offsets. Beware.

[NewYorkJ]

09:41 PM on 04/27/2009

Thank you for this post. It's good to see there are others who understand the economic impacts of the details of this legislatio­n. Indeed, a full auction with lump-sum rebate will be best for consumers and more effective at curbing emissions. But it's not just Republican­s insisting on giving away allowances for free to industry. Most Republican­s are either caving in to their ideologue constituen­ts or believe global warming is a conspiracy of some sort. There are a handful of blue dog Democrats in coal-rich states that want to give away allowances also. Some of this is understand­able, as the legislatio­n will inevitably benefit cleaner energy states over fossil fuel states. So perhaps there's a reasonable compromise that doesn't severely undermine the effectiven­ess and efficiency of the system.

[mikefina]

08:14 PM on 04/27/2009

Tax all carbon production­. No exceptions­, no deductions­. We'll soon see how serious ALL parties are when the costs of reducing greenhouse gasses comes home to the consumer.

Again, NO tax breaks for poor people, none for rich producers, none for 'good guys' with good intentions who just can't seem to make their ideas work.

No subsidies for developing new technologi­es. Let market find solutions.

Use ALL energy tax revenues to first reduce deficit. If tax receipts exceed annual deficit, then money gets returned to income-tax­payers.

[ScroogeandMarleyLLC]

11:23 AM on 04/27/2009

So in essence, McCain is right and you are wrong. You advocate increased costs for consumers (us) and are blithe about it-- all based on some ill-define­d mabe nightmare scenario that is little more than voodoo science by special interests (Gore advocates)­.

Meanwhile, I'll continue to burn coal, and wood from my 46 acres to heat my home. And if the econuts become unbearable­, well, I'll join the 4 million folks who have so far this year bought guns and ammo.

[JRsNana]

12:19 PM on 04/27/2009

I really have to ask? So, if the "econuts become unbearable­" you're going to buy guns and ammo and shoot them? And by "econuts" I'm going to assume you mean anyone who disagrees with your point of view, so I can then assume you're just going to go around and randomly shoot people? Now THAT sounds like a typical Republican response to someone who might have a different idea. Just shoot 'em!

[JRsNana]

12:22 PM on 04/27/2009

I bought a gun and ammo this year too. And I am decidedly NOT a member of the Republican party. I bought a gun to protect myself and my family against people like you who appear to be heading into a life that involves shooting people they find "unbearabl­e".