Yesterday, CBO Director Doug Elmendorf testified to the Senate Finance Committee on the distribution of revenues from a cap-and-trade program for carbon dioxide emissions. The most important part of his testimony makes the case for auctioning off the permits. From the overview at his blog:
Giving allowances to energy-intensive manufacturers would not, by itself, hold down the price of their output, which would rise to reflect the private market value of the allowances. The result could be windfall profits for these firms, which would tend to benefit higher-income households who own most stocks.
I prefer a carbon tax to cap-and-trade, but if we are going to have cap-and-trade, it is critical that we auction the permits. In this report by the AFP, we get OMB Director Orszag holding to that point:
The question is how can we reduce greenhouse gas emissions, make ourselves less dependent on foreign oil, and promote a stronger economy. The answer is obvious to most economists -- raise the relative price of carbon and return to the revenues to those most adversely affected.
One piece of "news" yesterday was the change in fuel efficiency standards on the horizon. From the Associated Press:
Also, Obama directed federal transportation officials to get going on new fuel efficiency rules, which will affect cars produced and sold for the 2011 model year. That step was needed to enforce a 2007 energy law, which calls for cars and trucks to be more efficient every year, to at least 35by 2020.
Obama also meant to set a tone with his promises: Science will trump ideology and special interests, attention will stay high even when gas prices fall.
If you check back in the last paragraph of my June 3 post, I warned that alternative energy investments and conservation would be at risk if we allowed oil prices to decline too far. I suggested a tax to keep oil prices at the equivalent of $80 a barrel. That seemed like fantasy back then, when crude oil prices were hovering around $125 per barrel. Now that they have dropped to $62 per barrel yesterday, fantasy has become reality.
Traffic deaths declined 20% nationwide during March and April, 2008 versus the same period a year ago as a result of high gasoline prices according to a study by Michael Sivak of the University of Michigan's Transportation Research Institute. It pays to be cautious is jumping to conclusions based upon a few months of evidence, but having logged a lot of time on Washington's Beltway recently, I can assure you there's less traffic, and most of that traffic is travelling at slower speed. The Washington Post interviewed area transportation experts who still see lots of traffic fatalities, particularly on motorbikes, but Sivak predicts we will drop below 40,000 fatalities nationwide in 2008 for the first time since 1961!