Q: Does Dingell-Boucher have meaningful auctioning of CO2 permits before 2026?

A: No.

The Dingell-Boucher climate bill has been criticized by many for having weak targets over the next two decades (see “Dingell and Boucher draft climate bill: Likely no CO2 cut until near 2030”). And even moderate Senators have doubts about using offsets as a major cost-containment strategy:

“The emissions don’t have to be actually reduced,” [Bingaman] said. “Instead, everyone can buy offsets that turn out not to have resulted in additional emission reductions.

That leads to a simple equation:

Weak targets + too many rip-offsets = meaningless auctions.

But E&E News (subs. req’d) reports today:

“It’s just false to say that we wouldn’t auction allowances before 2026, when every single option would auction allowances before 2026,” the Dingell aide said….

The Dingell-Boucher bill has created confusion in some quarters by taking an open-ended stance on the distribution of emission credits, one of the most politically charged areas surrounding climate legislation.

“Created confusion in some quarters” is putting it mildly. Suppose, like the vast majority of people and Members, you don’t read the 461-page bill, but, say just read the Memo to Committee Members, here’s what you’d come away with:

… the discussion draft presents four options concerning how emissions allowances might be allocated to firms, states, consumers, and other areas….

in recognition of the impossibility of allocating allowances and now for the next four decades, the draft bill would auction all the allowances from 2026 on.

Hmm. Doesn’t sound like any aucutioning before 2026. But, in fact, if you read entire 461-page bill itself, you’d find buried deep inside that some of the allocated permits, in particular the ones allocated to the government, are then auctioned. And in a couple of the options, that is a lot of auctioning. So while Dingell-Boucher have put out some incredibly confusing material, there is technically auctioning before 2026 in every case.

I say “technically” because the auctions will be largely meaningless before 2026, since the targets are too weak, and because the quantity of offsets allowed in substitution for purchasing allowances is too damn big.

The draft bill requires emissions be cut back to only 6 percent below 2005 levels by 2020. Yet in 2020, you can satisfy up to 15% of your compliance obligation with rip-offsets, which are obviously going to be the preferred strategy since they are much cheaper. If they weren’t cheaper nobody would bother having an offset program. Cheapness is the raison d’ªtre, the sine qua non, the very quintessence of rip-offsets, if you will.

That means the cap in 2020 is effectively 2005 emissions levels PLUS 9%, which is no cap at all!

Worse, in 2021, the permitted allowances drop to about a 10% cut from 2005 levels, but the allowed offsets jump to 30%!

Yes, that’s right. In 2021, the “cap” is really 2005 levels PLUS 20%.So there will be no meaningful auction. Demand will be too low. The price of a permit will be set not by any auction, but by the average price of domestic and international offsets.


And assuming that Obama keeps his much-repeated promise to aggressively implements the clean energy strategy he detailed during the campaign (see “Breaking news — A real energy plan for America: Efficiency now, 10% renewables by 2012, and one million plug-in hybrids by 2015”), then U.S. CO2 emissions growth can be expected to slow significantly. So perhaps we should revise the formula again:

Strong push on clean energy + weak CO2 targets + too many ripoffsets = pointless auctions.

Dingell-Boucher should not be what the Obama administration builds its climate legislation around.