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Is It Too Late To Go Back To 100% Auctions?

Michael A. Livermore is the executive director of the Institute for Policy Integrity at New York University School of Law. He is the author, along with Richard L. Revesz, of Retaking Rationality: How Cost-Benefit Analysis Can Better Protect the Environment and Our Health.

The Waxman-Markey climate change bill is now inching closer to passage in the House. If it can get through Waxman's Energy and Commerce Committee, it's likely to survive whatever amendments House Republicans will try and throw at it on the floor. While not perfect, the bill is still a transformational step. Despite giveaways to industry and not enough compensation for consumers, it represents a decent compromise that will drive the United States toward a lower carbon future. If the bill ultimately becomes law, the White House will be able to take the moral high ground in international negotiations and use it to bring China and India to the bargaining table, finally creating a global regime to deal with climate change.

But there is one major industry that Waxman and Markey have left out in the cold: Big Oil. Lobbyists for the oil industry are now running around Capitol Hill in panic because the bill hands out big subsidies to keep electricity prices down, but does nothing to subsidize gasoline consumption. Combine that with the Obama administration's plans for tighter vehicle fuel-economy standards, and Big Oil appears to be on the ropes. But anyone who thinks the oil industry is going to take this lying down should watch some Mohammad Ali reels. Oil lobbyists need only a handful of Democratic senators to grind the bill to a halt, and oil companies will try to paint any legislation that leaves them out as a dreaded "gas tax" (carbon prices under the bill would start out around $15 per ton, which translates to a 15-cent-per-gallon increase). If the economy starts heating up, and summer gas prices start spiking, this argument could have legs.

So how could legislators pacify the oil industry? Waxman-Markey has already divvied up nearly all of its carbon permits. Any changes to the current equation will just infuriate the other industries, who are probably already busy calculating what they're going to do with their share. There is very little wiggle room left. At this point, legislators can either try to surmount oil industry opposition (good luck) or take back what has already been given to utilities and other energy-intensive industries.

If the Senate does become deadlocked, another option might be to start fresh with a principled position of 100 percent auctions and build political support around that, rather than trying to appease every special interest group. The revenue from the auctions could be refunded back to every American—either directly or, as Obama suggested, through permanent tax credits. By going directly to the public, the president could leverage his political capital to fight back against lobbyists.

An insider coalition on climate change is going to be extremely difficult to maintain—there are too many interests at the table, and anyone that gets left out may have the power to drag down the entire process. But, through an auction and rebate, Congress could deliver a tangible and immediate benefit to the American public. If the President goes to the public and talks about the need for Congress to put an energy rebate check in the mail, it will be difficult for any industry to put on the brakes.

--Michael A. Livermore