Posted
September 1, 2006

Two Cheers for Arnie, Three for Eliot

While Schwarzenegger deserves praise for addressing climate change, New York's Eliot Spitzer has a better idea.

This week California joined New York and six other northeast states in vowing to reduce climate-changing carbon emissions. By agreeing to sign a bill sponsored entirely by Democrats, Republican Gov. Arnold Schwarzenegger has made himself into an environmental superhero just in time for the November election.

But now that California has joined the growing roster of states and localities that has pledged to cap carbon emissions, it too must address the billion dollar question that lurks behind all carbon trading schemes: who owns the sky?

All cap-and-trade systems involve the creation of valuable new property rights, the right to emit carbon or other pollutants into the atmosphere. These rights are valuable because they’re scarce โ€“ demand for them will exceed the declining supply โ€“ and because they’re tradeable. Whoever owns them can sell them on the market for cash.

In the past, most cap-and-trade programs have rewarded historic polluters by giving them future emission permits for free. This is genteelly referred to as “grandfathering,” but is actually a giveaway of common wealth to private corporations, comparable to the railroad land grants of the 19th century, but without any compensating public benefit.

The alternative to grandfathering is to make all polluters pay a market price for dumping waste into our common sky. This alternative would involve auctioning emission rights to corporations who want to pollute, then dedicating the revenue to common purposes and/or citizen dividends, as Alaska does with its oil revenue. The new California legislation, like the Regional Greenhouse Gas Initiative in the Northeast, doesn’t declare a preference for grandfathering or auctioning. It creates a process by which the question will be answered in the next few years. It’s thus up to citizens and politicians to debate and resolve this question while the cap-and-trade systems are being designed.

In New York, the current attorney general and probable next governor, Eliot Spitzer, has taken a refreshingly clear stand. In Spitzer’s view, 100 percent of the newly created emission permits should be auctioned, with 100 percent of the revenue dedicated to public benefit and rebates to residents. Since emitters cause societal and environmental harm, Spitzer contends, it’s entirely appropriate for them to pay for these external costs. Moreover, since energy prices will rise once carbon is capped, it’s important to protect the families who will pay these higher prices. [Click here for Eliot Spitzer’s statement.]

Out in California, however, the superhero governor has so far been mum on this question. We don’t know whether he favors welfare for polluters or a fair deal for California citizens. Until we hear from him, then, it’s two cheers for Arnie and three for Eliot.

[Editor’s note: Peter Barnes is the author of Who Owns The Sky? and Capitalism 3.0: A Guide to Reclaiming the Commons .]