NCPA - National Center for Policy Analysis

Emissions Reduction Credits: Kyoto Lite?

April 9, 2003

The Senate Energy and Natural Resources Committee has drafted "energy" legislation that will, if enacted, lead inexorably to Kyoto-style energy rationing, says Marlo Lewis Jr., of the Competitive Enterprise Institute. The draft bill directs the Department of Energy to award companies "transferable credits" for "voluntary" CO2 emission reductions.

Under this scheme, companies that take steps now to reduce their CO2 emissions will earn regulatory credits they can later use to comply with Kyoto or a similar compulsory regime. Lewis says transferable credits will give credit holders an incentive to lobby for Kyoto or its domestic equivalent.

  • Credits attain full market value only under a mandatory emissions reduction target or "cap" -- in effect, credits are Kyoto stock that bears dividends only if Kyoto or kindred regulations are adopted.
  • Although transferable credits are touted as "voluntary" and "win-win" (good for business, good for the environment), they will create a coercive system in which one company's gain is another's loss.
  • That is because for every company that gains a credit in the pre-regulatory period, there must be another that loses a credit in the mandatory period (otherwise the emissions "cap" will be broken).
  • Consequently, companies that do not "volunteer" will be penalized -- forced in the mandatory period to make deeper emission reductions than the cap itself would require, or pay higher credit prices than would otherwise prevail.

Furthermore, transferable credits will disadvantage small business, since participants gain at the expense of nonparticipants. Most small businesses will not participate, because they cannot afford to hire carbon accountants and engineers, yet all will have to pay higher energy prices if emission caps are imposed.

Source: Marlo Lewis Jr. (Competitive Enterprise Institute), "Nix the Energy Bill: Better no bill than an anti-energy bill," April 4, 2003, National Review Online.


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