Cap And Trade Is A New Payoff Machine For Democrats

Source: Ad Hoc Coalition of Small Business Refiners

Under a strict cap and trade program all of the above allowances (meaning 100%) would be auctioned off to find the "true" Market price for carbon. However, as can be expected with any government program where the government is looking to curry favor with one group or another, a number of allowances are being doled out for free - to win votes. It is a true game of the government picking the winners and losers before the game ever even starts.

Waxman-Markey (the cap and trade bill) doled out its allowances along the lines of the chart above.  In that chart you will see that 16.5 % will be truly auctioned.  The remaining 84.5% are given away for free over a limited period of time that ratchets down.

What was the refining industry's portion of these free allowances under Waxman-Markey? Under Waxman-Markey refiners have two categories of GHG emissions that they became obligors for, process emissions and consumer emissions.

Process emissions are the refiners' own GHG emissions from their own processes to convert oil into usable petroleum products like gasoline and diesel. Hence, they are referred to as "process emissions." What are some examples of "process emissions?" GHG from production of heat, steam or electricity; combustion in flares, and chemical process emissions from fugitive losses from equipment leaks. In a nutshell, it is any GHG emissions within the refinery fence line. Refiners' process emissions are about 3.76% to 6% of the total US GHG emissions. Among the Waxman-Markey free allowances, refiners got 2% for free and "small refiners" got an additional .25% for free to help cover these process emissions.

The .25% for small refiners was the Teague "deal" that he brokered with Nancy Pelosi

But you need to know that process emissions are only a small part of what refiners will be obligated for. Consumer emissions (the GHG emissions associated with the combustion of fuels refiners sell) make up almost 44% of the total US GHG emissions and it is unclear how much of this allowance value refiners will be able to pass on to consumers.... because if they raise gasoline prices too high, imported petroleum products from India and Saudi Arabia get very attractive. We already import about 11% of our petroleum product and under Waxman-Markey that number is set to go higher.

You need to also know that even if they could get over the trade challenges that would come from taxing imports at the border for these consumer emissions (and this is a BIG if, the WTO challenge is pretty clear and strong), imported products will still enjoy a competitive advantage because they aren't taxed with the process emissions. India and Saudi Arabia come out ahead under Waxman-Markey.