Cap-and-trade all the rage

The news is full of cap-and-trade thanks to the Waxman-Markey bill. Paul Krugman likes it, Greg Mankiw does not, and the NY Times has a somewhat hagiographic Sunday article on the history of the approach, which it notes is "is almost perfectly designed for the buying and selling of political support through the granting of valuable emissions permits to favor specific industries and even specific Congressional districts."

The question I have is whether there are enough permits to go around to please everyone. Reuters has a breakdown of the proposed permit allocations:

• 15 percent of the carbon permits will be auctioned off (proceeds will go toward helping low- and moderate-income families)
• 35 percent for electric utility sector, including 30 percent for distribution companies and 5 percent for privately owned coal companies
  
• 15 percent for carbon-intensive industries, such as steel and cement, in 2014 (reduced by 2 percent every year)
  
• 10 percent for states for renewable energy and efficiency investment from 2012 to 2015 (reduced to 5 percent between 2016 to 2022)
  
• 9 percent for local natural gas distribution companies (reduced to zero between 2026 and 2030)
  
• 5 percent for tropical deforestation projects
  
• 3 percent for automakers toward advanced technologies through 2017 (reduced to 1 percent from 2018 and 2025)
  
• 2 percent for domestic adaptation to climate change between 2012 and 2021 (increases to 4 percent between 2022 to 2026, to 8 percent in 2027)
  
• 2 percent for international adaptation and clean technology transfer from 2012 to 2021 (increases to 4 percent between 2022 to 2026, to 8 percent in 2027)
  
• 2 percent for carbon capture and storage technology from 2014 and 2017 (increases to 5 percent after 2018)
  
• 2 percent for oil refineries from 2014 to 2026
  
• 1.5 percent for programs helping home heating oil and propane users (reduced to zero between 2026 and 2030)
  
• 1 percent for Clean Energy Innovation Centers for R&D funding
  
• 0.5 percent for job training from 2012 to 2021 (increases to 1 percent after 2022)

By my count that 64% for private companies. The rest is not bad--in particular, 15% to offset impacts on low-income households is the number that lots of folks talk about--but what about the middle class? I see five possible interpretations/outcomes:

1. The bill will fail.
2. Middle-class voters care enough about climate change to bite the bullet.
3. Middle-class voters aren't important, it's really industry that has political power.
4. There will be a backlash once middle-class voters find out that energy prices are going up and there's no tax relief to show for it.
5. There will be no backlash because the bill will have enough loopholes to keep permit prices down, i.e., the policy will be ineffectual.
   

Time will tell...