The Wonderful Politics of Cap-and-Trade: A Closer Look at Waxman-Markey

The headline of this post is not meant to be ironic. Despite all the hand-wringing in the press and the blogosphere about a political "give-away" of allowances for the cap-and-trade system in the Waxman-Markey bill voted out of committee last week, the politics of cap-and-trade systems are truly quite wonderful, which is why these systems have been used, and used successfully.

The Waxman-Markey allocation of allowances has its problems, which I will get to, but before noting those problems it is exceptionally important to keep in mind what is probably the key attribute of cap-and-trade systems: the allocation of allowances - whether the allowances are auctioned or given out freely, and how they are freely allocated - has no impact on the equilibrium distribution of allowances (after trading), and therefore no impact on the allocation of emissions (or emissions abatement), the total magnitude of emissions, or the aggregate social costs. (Well, there are some relatively minor, but significant caveats - those "problems" I mentioned -- about which more below.) By the way, this independence of a cap-and-trade system's performance from the initial allowance allocation was established as far back as 1972 by David Montgomery in a path-breaking article in the Journal of Economic Theory (based upon his 1971 Harvard economics Ph.D. dissertation). It has been validated with empirical evidence repeatedly over the years.

Generally speaking, the choice between auctioning and freely allocating allowances does not influence firms' production and emission reduction decisions. Firms face the same emissions cost regardless of the allocation method. When using an allowance, whether it was received for free or purchased, a firm loses the opportunity to sell that allowance, and thereby recognizes this "opportunity cost" in deciding whether to use the allowance. Consequently, the allocation choice will not influence a cap's overall costs.

Manifest political pressures lead to different initial allocations of allowances, which affect distribution, but not environmental effectiveness, and not cost-effectiveness. This means that ordinary political pressures need not get in the way of developing and implementing a scientifically sound, economically rational, and politically pragmatic policy. Contrast this with what would happen when political pressures are brought to bear on a carbon tax proposal, for example. Here the result will most likely be exemptions of sectors and firms, which reduces environmental effectiveness and drives up costs (as some low-cost emission reduction opportunities are left off the table). Furthermore, the hypothetical carbon tax example is the norm, not the exception. Across the board, political pressures often reduce the effectiveness and increase the cost of well-intentioned public policies. Cap-and-trade provides natural protection from this. Distributional battles over the allowance allocation in a cap-and-trade system do not raise the overall cost of the program nor affect its environmental impacts.

In fact, the political process of states, districts, sectors, firms, and interest groups fighting for their share of the pie (free allowance allocations) serves as the mechanism whereby a political constituency in support of the system is developed, but without detrimental effects to the system's environmental or economic performance. That's the good news, and it should never be forgotten.

But, depending upon the specific allocation mechanisms employed, there are several ways that the choice to freely distribute allowances can affect a system's cost. Here's where the "caveats" and "problems" come in.

First, auction revenue may be used in ways that reduce the costs of the existing tax system or fund other socially beneficial policies. Free allocations to the private sector forego such opportunities. Below I will estimate the actual share of allowance value that accrues to the private sector.

Second, some proposals to freely allocate allowances to electric utilities may affect electricity prices, and thereby affect the extent to which reduced electricity demand contributes to limiting emissions cost-effectively. Waxman-Markey allocates allowances to local distribution companies, which are subject to cost-of-service regulation even in regions with restructured wholesale electricity markets. So, electricity prices would likely be affected by these allocations under existing state regulatory regimes. The Waxman-Markey legislation seeks to address this problem by specifying that the economic value of the allowances given to electricity and natural gas local distribution companies should be passed on to consumers through lump-sum rebates, not through a reduction in electricity rates, thereby compensating consumers for increases in electricity prices, but without reducing incentives for energy conservation.

Third, and of most concern in the context of the Waxman-Markey legislation, "output-based updating allocations" provide perverse incentives and drive up costs of achieving a cap. This merits some explanation. If allowances are freely allocated, the allocation should be on the basis of some historical measures, such as output or emissions in a (previous) base year, not on the basis of measures which firms can affect, such as output or emissions in the current year. Updating allocations, which involve periodically adjusting allocations over time to reflect changes in firms' operations, contrast with this.

An output-based updating allocation ties the quantity of allowances that a firm receives to its output (production). Such an allocation is essentially a production subsidy. This distorts firms' pricing and production decisions in ways that can introduce unintended consequences and may significantly increase the cost of meeting an emissions target. Updating therefore has the potential to create perverse, undesirable incentives.

In Waxman-Markey, updating allocations are used for specific sectors with high CO2 emissions intensity and unusual sensitivity to international competition, in an effort to preserve international competitiveness and reduce emissions leakage. It's an open question whether this approach is superior to an import allowance requirement, whereby imports of a small set of specific commodities must carry with them CO2 allowances. The problem with import allowance requirements is that they can damage international trade relations. The only real solution to the competitiveness issue is to bring non-participating countries within an international climate regime in meaningful ways. (On this, please see the work of the Harvard Project on International Climate Agreements.)

Also, output-based allocations are used in Waxman-Markey for merchant coal generators, thereby discouraging reductions in coal-fired electricity generation, another significant and costly distortion.

Now, let's go back to the hand-wringing in the press and blogosphere about the so-called massive political "give-away" of allowances. Perhaps unintentionally, there has been some misleading press coverage, suggesting that up to 75% or 80% of the allowances are given away to private industry as a windfall over the life of the program, 2012-2050 (in contrast with the 100% auction originally favored by President Obama).

Given the nature of the allowance allocation in the Waxman-Markey legislation, the best way to assess its implications is not as "free allocation" versus "auction," but rather in terms of who is the ultimate beneficiary of each element of the allocation and auction, that is, how the value of the allowances is allocated. On closer inspection, it turns out that many of the elements of the apparently free allocation accrue to consumers and public purposes, not private industry.

First of all, let's looks at the elements which will accrue to consumers and public purposes. Next to each allocation element is the respective share of allowances over the period 2012-2050 (measured as share of the cap, after the removal - sale -- of allowances to private industry from a "strategic reserve," which functions as a cost-containment measure.):

a. Electricity and natural gas local distribution companies, 22.2%

b. Home heating oil/propane, 0.9%

c. Protection for low- and moderate-income households, 15.0%

d. Worker assistance and job training, 0.8%

e. States for renewable energy, efficiency, and building codes, 5.8%

f. Clean energy innovation centers, 1.0%

g. International deforestation, clean technology, and adaptation, 8.7%

h. Domestic adaptation, 5.0%

The following elements will accrue to private industry, again with average (2012-2050) shares of allowances:

i. Merchant coal generators, 3.0%

j. Energy-intensive, trade-exposed industries, 8.0%

k. Carbon-capture and storage incentives, 4.1%

l. Clean vehicle technology standards, 1.0%

m. Oil refiners, 1.0%

The split over the entire period from 2012 to 2050 is 59.4% for consumers and public purposes, and 17.1% for private industry. This 17% is drastically different from the suggestions that 70%, 80%, or more of the allowances will be given freely to private industry in a "massive corporate give-away."

All categories - (a) through (m), above - sum to 76.5% of the total quantity of allowances over the period 2012-2050. The unallocated allowances -- 23.5% over 2012 to 2050 -- are scheduled in Waxman-Markey to be used almost entirely for consumer rebates, with the share of available allowances for this purpose rising from approximately 10% in 2025 to more than 50% by 2050. Thus, the totals become 82.9% for consumers and public purposes versus 17.1% for private industry, or approximately 80% versus 20% -- the opposite of the "80% free allowance corporate give-away" featured in many press and blogosphere accounts. Moreover, because some of the allocations to private industry are - for better or for worse - conditional on recipients undertaking specific costly investments, such as investments in carbon capture and storage, part of the 17.1% free allocation to private industry should not be viewed as a windfall.

Speaking of the conditional allocations, I should also note that some observers (who are skeptical about government programs) may reasonably question some of the dedicated public purposes of the allowance distribution, but such questioning is equivalent to questioning dedicated uses of auction revenues. The fundamental reality remains: the appropriate characterization of the Waxman-Markey allocation is that more than 80% of the value of allowances go to consumers and public purposes, and less than 20% to private industry.

Finally, it should be noted that this 80-20 split is roughly consistent with empirical economic analyses of the share that would be required - on average -- to fully compensate (but no more) private industry for equity losses due to the policy's implementation. In a series of analyses that considered the share of allowances that would be required in perpetuity for full compensation, Bovenberg and Goulder (2003) found that 13 percent would be sufficient for compensation of the fossil fuel extraction sectors, and Smith, Ross, and Montgomery (2002) found that 21 percent would be needed to compensate primary energy producers and electricity generators.

In my work for the Hamilton Project in 2007, I recommended beginning with a 50-50 auction-free-allocation split, moving to 100% auction over 25 years, because that time-path of numerical division between the share of allowances that is freely allocated to regulated firms and the share that is auctioned is equivalent (in terms of present discounted value) to perpetual allocations of 15 percent, 19 percent, and 22 percent, at real interest rates of 3, 4, and 5 percent, respectively. My recommended allocation was designed to be consistent with the principal of targeting free allocations to burdened sectors in proportion to their relative burdens, while being politically pragmatic with more generous allocations in the early years of the program.

So, the Waxman-Markey 80/20 allowance split turns out to be consistent -- on average, i.e. economy-wide -- with independent economic analysis of the share that would be required to fully compensate (but no more) the private sector for equity losses due to the imposition of the cap, and consistent with my Hamilton Project recommendation of a 50/50 split phased out to 100% auction over 25 years.

Going forward, many observers and participants in the policy process may continue to question the wisdom of some elements of the Waxman-Markey allowance allocation. There's nothing wrong with that.

But let's be clear that, first, for the most part, the allocation of allowances affects neither the environmental performance of the cap-and-trade system nor its aggregate social cost.

Second, questioning should continue about the output-based allocation elements, because of the perverse incentives they put in place.

Third, we should be honest that the legislation, for all its flaws, is by no means the "massive corporate give-away" that it has been labeled. On the contrary, more than 80% of the value of allowances accrue to consumers and public purposes, and less than 20% accrue to covered, private industry. This split is roughly consistent with the recommendations of independent economic research.

Fourth and finally, it should not be forgotten that the much-lamented deal-making that took place in the House committee last week for shares of the allowances for various purposes was a good example of the useful, important, and fundamentally benign mechanism through which a cap-and-trade system provides the means for a political constituency of support and action to be assembled (without reducing the policy's effectiveness or driving up its cost).

Although there has surely been some insightful press coverage and intelligent public debate (including in the blogosphere) about the pros and cons of cap-and-trade, the Waxman-Markey legislation, and many of its design elements, it is remarkable (and unfortunate) how misleading so much of the coverage has been of the issues and the numbers surrounding the proposed allowance allocation.

Comments

[DesertDogAlpha]

Cap and trade is wonderful! Let's achieve the much discussed energy independence and eliminate imported oil within 10 years on the basis of this amazing approach.

Establish 2009 as the baseline for the number of barrels of oil imported. Reduce it by 10 percent of that number each year and in 10 years there would be no oil imports. Wouldn't that be wonderful? We'd just auction the right to import to import oil off at a market-based price and I'm sure American consumers wouldn't mind paying the price for that cap and trade either. And, voila, no more oil imports. Of course, by year 9 when we are trying to get along on only 10 percent of 2009 import amounts, things could get a little pricy, but cap and trade will take care of that, and US manufacturing will be so competitive what with green jobs and everything.

And, most wonderful of all, alternative energy technologies would take off with no need for government subsidies since they'd have the certainty that oil imports were no longer competing against them. Just think how much the government would save vs. subsidizing wind, solar, ethanol, yada, yada.

Wonderful!!

[Guitarsandmore]

From Barack Obama’s campaign web site: “energy fact sheet”

“Reduce Carbon Emissions 80 Percent by 2050: Barack Obama supports implementation of a market-based cap-and-trade system to reduce carbon emissions by the amount scientists say is necessary: 80 percent below 1990 levels by 2050. Obama will start reducing emissions immediately in his administration by establishing strong annual reduction targets, and he’ll also implement a mandate of reducing emissions to 1990 levels by 2020.”

Time to deliver on your promise Obama!

[AntonioSosa]

Race is important for Sotomayor! She seems to believe that as a Latino woman she has the right to be sexist and racist. Sotomayor was/is a member of La Raza (The Race), one of the most racist organizations in the country. Speaking at a La Raza meeting, Sotomayor said, “I wonder whether by ignoring our differences as women or men of color we do a disservice both to the law and society.” I guess she wants to focus on our differences, on race, and believes that she has the right to show “empathy,” to favor women or men of color and to punish white males and females for the “crime” of being white. Americans – Democrats and Republicans – have the duty to fight the nomination of Sotomayor as a Supreme Court judge.

[GardenerNorCal]

Why is cap and trade the only solution being posed?

[AntonioSosa]

Why? Because Obama's wants to use the global warming/cap and trade scam to force us to swallow socialism/­communism/­Marxism (whatever you want to call the system where the government controls everything and people have no rights or property). Don't forget that, as his relatives, mentors and friends, Obama is a Marxist.

Even the Russians are saying that "... the American decent into Marxism is happening with breath taking speed, against the backdrop of a passive, hapless sheeple, excuse me dear reader, I meant people." Please Google "Pravda.Ru" and "American capitalism gone with a whimper," find the article and share it with others. We desperately need to defend our country and our future from Obama before it's too late!

[minervoice]

Oh, please. Obama is no more a Marxist than you are.

[ThoughtfulTom]

So I am curious - is there anyone posting here, in opposiition to cap and trade policy, who thinks global warming is a threat to our current civilization?

thanks,
Tom

[Radarman]

I've asked it before and didn't get an answer so maybe this time someone can tell me, what is the global average temperature we are shooting for? What is our goal? To say I want to drive less is meaningless. To say I want to reduce my annual mileage by 10% is a real goal. So do we want to reduce the global temp by 2 degrees or 20 degrees. How will we know when we get to where we want to be if we don't know where we are going?

[Pucky]

You seem to be missing the whole point.

Cap and trade isn't in anyway useful for reducing global warming. Because it is a system that is so easily gamed it will just become a political patronage system, so Congress can give favors and collect rent from those it chooses.

Without a world wide effort (that means China and India too), it is hopeless to reduce CO2 significantly.

And nobody who is poor is going to stop trying to get wealthy if it means they have to abide by CO2 restrictions.

[Radarman]

Agree whole heartily. That is what I'm trying to point out with the question of what global temp are the Eco crowd shooting for. Cap'n Trade is a get rich scam for some and a religious watch word for others but no one can say what the goal is. They just tell us we must reduce but not by how much because:
1. They don't know.
2. If they set a goal and we reach it the money maker ends.
3. If they use measurable figures they can be fact checked and that's bad.

[johnnyhempseed]

Pucky the U.S. military branches and all the hundreds of bases are the largest consumers of fossil fuels globally.Some of these have golf courses .In a conflict each soldier uses over 7 gallons of fuel dailly.,compared to one gallon during WW2.Just maintaining allert status for air defences on one carrier group is a huge amount of fuel.
It is just a revenue scheme.Wont make a degree of diference .... (pun intended).

[AntonioSosa]

Obama's goal is to use global warming/cap and trade scam to force us to swallow socialism/­communism/­Marxism (whatever you want to call a system where the government controls everything and people have no rights or property).

Cap and trade represents huge taxes and cost increases, which will hurt mostly the poor and the middle class. Cap and trade will give dictatorial powers to Obama and will further enrich his billionaire friends (Gore, Soros, Goldman Sachs, Obama’s Chicago Climate Exchange friends, GE, etc.) -- all at our expense and at the expense of our children and grandchildren.

[Agent420]

Silly, silly and more silliness.

[johnnyhempseed]

Radar man ,there are too many variables to answer that question.Water temp v.s. air temp etc. The goal should be stabilization of atmospheric carbon at 350 ppm to reduce the accelleration of global warming untill we can adequetly sequester CO2., Unfortunately the permafrost melt may realease so much methane the increase could go on logarthmically. peace

[danceswithtrees]

Very nice to see the posts and realize even the left is starting to awaken from the Al Gore induced haze and that this proposed legislation is nothing but a huge ENERGY TAX on you and me. The electric rates would go up approx 80% the gas tax 2 to 3 dollars per gallon. This would have a devastating effect on those Americans just Trying to get by.

I live in California and have seen first hand what over regulation and business crippling taxes have done to move the JOB CREATORS TO NEIGHBORING STATES. everyone worries about losing good paying jobs overseas, well if these proposals become laws watch corporate America flee in droves to countries that do not enact these over burdening regulations.

I love it when the left watches the jobs flee because of their (well meaning) actions and then balme them on the "greedy corporations" that just want to make a buck and stay afloat.

Please write your congresspersons and let them know your displeasure with this economic nightmare!

[dnpvd51]

James Hansen's tax and dividend proposal is clearly best. The carbon tax should be returned to the people. No politics at all.

Why do we need government gaming this system?

I truly do not understand why James Hansen's gas tax has not caught fire.

[Pucky]

Real simple.

People don't want to pay more taxes, and they certainly don't want to pay direct taxes to something with no visible, immediate benefit.

[Rhetticent]

There is no need for any tax system, especially one proposed by the King of the Global Warming Fraud.

[Pquilson]

If, in fact, "The carbon tax should be returned to the people.", is true. Why the tax? Seems to me to be an exercise in futility. I give you a dollar, then you give it back to me. what has been accomplished? Nothing. However, if you give a dollar to the government, what guarantee is there that the government gives that dollar back to you? None, is the short answer. At this time, I have no faith not confidence that anything the government says it will do is true.
This Cap and Tax is a revenue maker for the goverhment, per the statements from Pelosi, and from Obama. They wish the money for other programs. This will not affect climate change in the least, in my opinion.

[DesertDogAlpha]

Simple lack of political courage. The message that is OK with the pols, including the President, is that all the taxes can be paid by only 5 percent of us with the rest getting a free ride. This tax would have to be paid by everyone and we know that won't do!

[joebhed]

Wow, you must be a really smart guy to be writing all that stuff about politics and pollution and technology and stuff.
I guess cap-and-trade is really wonderful stuff, like when mr. Smith goes to Washington.
But for some reason, the Congressional budget Office(CBO) found that straight up carbon tax would get us to our carbon-balancing goals quicker and cheaper than the cap-and-trade scam.
Maybe Orzag wasn't so smart until he got to be budget director.

[Rhetticent]

Joe, that's the whole point. Getting to "carbon-balancing" goals means nothing to them. This is all about gaining control of all energy, so they can grant credits to people they like, and deny them to people they don't like. They don't give a rats ass about the environment. This is about money and power, and nothing else.

[mioffe]

"The ideas below come from George Philander's book, Our Affair With El Niño, chapter 7: Constructing a Model of Earth's Climate, page 105.
1. Earth with no atmosphere
If earth had no atmosphere, if it had a land surface that reflected some sunlight like the real earth, and if it were in equilibrium with solar heating, the average surface temperature of earth would be -18°C (0°F), far colder than the average temperature of our earth, which is 15°C (59°F). Worse, the surface would cool down to around -160°C (-250°F) soon after the sun set.
2. Earth with a static atmosphere and no ocean
If the earth had a static atmosphere with the same gases it has now, but with little water vapor and no ocean, the average surface temperature of earth would be 67°C (153°F). This is much warmer than our earth. The planet would be so hot because greenhouse gases in the atmosphere help keep heat near the surface, and because there is no convection, and no transport of heat by winds. Adding winds cools the planet a little, but not enough.

3. Earth with an atmosphere and ocean
Earth has an atmosphere and ocean, and the average surface temperature is a comfortable 15°C (59°F). Water evaporates from the ocean and land, cooling the surface. Winds carry the water vapor to other latitudes, and sometimes high up into the air, where heat is released when the vapor condenses to water. "
WHY #3 IS COOLER?

[lebensfroh99]

Why will it cost more to go "green". We just passed a Bill. $ pork/stimulus and you are telling me my power bill will increase!! What a joke. It's not about saving the planet, but about cashing in and the Obama admin. (and companies that support him like GE) will not miss the chance to squeeze us for the last drop. I'm all for conserving, recycling, re-using, etc., and it doesnt' have to brake the bank. However, this admin. wants to break the bank and uses the AGW theory as pretext. I wonder what is their agenda.

[ThoughtfulTom]

I use green energy to heat my home. It is free (other than trivial energy to power some pumps). Everyone acts like no one will change their behavior. You will. When energy prices more accurately reflect energy costs (ie the cost of electricity and various fuels go up), you will use less of them. Thus pay less to Exxon and the terrorists, and more to local workers to install pay-once, energy forever systems in your home and business.

The real question is: why is it taking a global crisis to move us in this direction? And given that oil and gas are at or near peak production (do any of you negativity nabobs recall $4 gas and $4 heating oil in the NE?) why would we wait? It cost you money to dither. Just leave the carbon economy and let the conspiracy theorists (see Rhetticent's post for one) to belly-ache and complain, while you chuckle at the bank and spend your money on things you desire, instead of paying money to the terrorists of the Mideast.

Tom

[Smallbanian]

I live below the poverty line, in a dying city, in an apartment building owned by an absentee slumlord. If you think for one instant he will install "green" energy, you don't know what its like to live on the other side of the tracks. All this will do is push my electricity bill up even more, of which I am already behind on because my wife lost her job. All I can say is if your some "middle class" soccer mom who screams green, think about how I'm being pushed from out of my home with no where to go. I voted for change, and if change means higher cost of living, decreased quality of life, I'd rather have Bush back. And I hate that guy. At least summer is coming and I still own a tent.

[Rhetticent]

There is no global crisis. Just like there was no global crisis as Paul Erlich predicted, or Rachel Carson, or the global cooling folks in the '70's, or the Radon menace, the ozone hole (that was miraculously healed by allowing DuPont to use a new kind of freon on which it held the patent). How many times do we get suckered by people into swallowing this crap? It's fine that you've found a means to heat your home. You're free to do that. I want to be free NOT to do that if I like. I do not want the government telling me I need to ride a bicycle to work, or telling me what kind of car to buy, or telling me what temperature I have to set my thermostat.

[Rhetticent]

Of COURSE it's wonderful. Any broad and potentially massive source of tax revenue that will enable the bloated federal government to continue to grow is considered a miracle by politicians, who can use the new tax dollars to bribe voters, and the Democratic Party, the party of Big Government. Liberals are slobbering over the potential revenue this will create. Who gives a damn if it cripples the economy and disproportionately effects the poor? It will employ thousands of new bureaucrats, who now have their nose in our homes and will soon be directly connected to our thermostats.

Can't wait for the bill to pass. Just as soon as the taxes start flowing in, global warming will be fixed and they can use that money for something more important, like studies on Chinese prostitutes.

[Pablo175]

How tall is Robert Waxman?

[Konrad]

But as economist Martin Sullivan recently (and oh so correctly) pointed out at Tax.com:

A cap-and-trade plan with 100% auctioning of permits is like a carbon tax. Obama's plan to use revenue from the auctions to pay for targeted low-income tax relief makes perfect sense because the implicit carbon tax disproportionately burdens the poor. But in their quest to pass what they delude themselves into calling "decisive and historic" legislation, members of the House Energy and Commerce Committee made massive concessions to carbon polluters. Instead of auctioning permits (as is sensible and as proposed by Obama), the House will give away 85 percent of the permits to polluters....

[AntonioSosa]

Cap and trade is "wonderful" to kill the U.S. economy and enslave Americans. It's "wonderful" to help Obama impose socialism/communism on us and to further enrich his billionaire friends (Gore, Soros, Goldman Sachs, Obama’s Chicago Climate Exchange friends, GE, etc.) -- all at our expense and at the expense of our children and grandchildren.

Cap and Trade “would be the equivalent of an atomic bomb directed at the U.S. economy—all without any scientific justification,” said famed climatologist Dr. S. Fred Singer. It would significantly increase taxes and the cost of energy, forcing many companies to close, thus increasing unemployment, poverty and dependence.

Those brainwashed to the point of wanting to destroy the economy to "prevent global warming" are behaving like the most primitive human beings who were duped into believing that human sacrifices would ensure them good weather. Human beings don't have the power to control climate! And killing the economy will not help the environment. Poor countries can’t protect the environment. Just look at Haiti!

More than 700 international scientists dissent over man-made global warming claims. They are now more than 13 times the number of UN scientists (52) who authored the media-hyped IPCC 2007 Summary for Policymakers.

Additionally, more than 30,000 American scientists have signed onto a petition that states, "There is no convincing scientific evidence that human release of carbon dioxide... is causing or will...cause catastrophic heating of the Earth's atmosphere and disruption of the Earth's climate."

[Decimal]

I don't buy that allocations don't affect the outcome for CO2. There's not enough experience with CO2 yet, and it's not like SO2 or NOX. Both of those have diminishing caps that are much steeper than anything that's been proposed for CO2. And honestly, why would a company even consider the lost opportunity cost of not being able to sell a free credit when they're not going to get anywhere near having credits anyway?