Washington (Platts)--23Jan2008

Economic and environmental policy experts told a US congressional panel
Wednesday that a greenhouse gas cap-and-trade system with 100% auction of
emission allowances could be designed to cushion anticipated energy price
increases for consumers and regions that rely on coal.

Speaking before the House Select Committee on Energy Independence and
Global Warming, John Podesta, president of the Center for American Progress,
said that 45% of the proceeds from auctions where industries buy permits to
cover their GHG emissions could be used to rebate citizens with low incomes
faced with higher power costs because of a mandate to reduce GHG emissions.

Another 45% of the proceeds could go toward public projects to improve
energy efficiency and develop low-emission technologies and the remaining 10%
could be used to support industries and regions hardest hit by the transition
to a carbon-free economy, said Podesta, the former chief of staff to President
Bill Clinton.

Robert Greenstein, executive director for the Center on Budget and Policy
Priorities, said consumer relief from higher energy prices under a GHG
cap-and-trade policy could come from tax credits or rebates, such as a payroll
tax credit. "Just write that in the cap-and-trade bill and go forward," he
told the committee.

But the discretionary spending for public projects would best be handled
through a trust fund, according to Greenstein.

The committee is exploring the impact of a GHG policy with an emissions
cap-and-trading system with no free allowances, which is now being proposed in
Europe.

The existing European emissions trading scheme has suffered criticism for
giving away allowances in a multi-billion-dollar market that resulted in
windfalls for companies that pollute the atmosphere, higher prices for
consumers and very few emission reductions.

Earlier Wednesday, the European Commission announced plans to pursue a
100% auction for its four-year-old carbon market. Peter Zapfel, who
coordinates the carbon markets and energy policy for the commission, told the
panel the changes include making auctions the main method for allocating for
emission allowances for the power sector starting in 2012. Allowance giveaways
for other sectors will end by 2020, he said.

Auctions lend efficiency and transparency to the GHG market while
providing a clear price signal, Zapfel said. Free allowances have the
potential to distort the market and create undue windfalls for some industries
while consumer prices increase, he said.

--Cathy Cash, cathy_cash@platts.com

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