How to Distribute $646 Billion in Carbon Market Revenues?

By JAMES KANTER

ReutersShould revenues from any potential carbon market in the United States be used to help preserve endangered ecosystems elsewhere?

Under a cap-and-trade system, polluters buy permits, usually from government authorities, to compensate for their emissions. Such a system would raise hundreds of billions of dollars in an economy the size of the United States.

So, what should governments do with that money?

President Barack Obama said in his recent budget proposal that any revenues raised in the United States (estimated at $646 billion between 2012 to 2019) should be used for alternative energy development — and tax breaks for some citizens.

That last bit makes sense, given that companies facing little competition, like big utilities, can easily pass on the costs of buying the permits, which could lead to sharp price increases on everyday goods — and on electricity in particular. Warren Buffett warned about this consequence last night.

Mr. Buffett’s point is reinforced by the experience in Europe, where some of the most coal-intensive utilities raised prices and earned windfall profits — even when the permits were issued free.

But when it comes to contemplating what to do with the money from a cap-and-trade system, there are broader equity issues to consider – like how much to help poorer, neighboring countries adapt to the effects of climate change created by emissions from the rich world.

David Cleary, the director of conservation planning for South America atThe Nature Conservancy, has suggested using some carbon market revenuesto support initiatives south of the American border.

First, Mr. Cleary says the United States should follow the example of the Germans, who channel a small proportion of cap-and-trade revenues to development projects abroad.

Second, he says that American companies should be able to meet some of their requirements to hold permits by generating credits from projects, based in South America, that seek to offset greenhouse gases.

“South of the border, there are millions of hectares of threatened grasslands and tropical forests, and millions of people — farmers, indigenous peoples, communities of every kind — living in and around degraded ecosystems they’d love to be restoring. It shouldn’t be beyond the bounds of human ingenuity to put this particular two-and-two together and bolt a hemispheric dimension onto a U.S. cap-and-trade system for carbon emissions.”