The FY 2010 Budget, proposes a carbon cap and trade system with "a 100 percent auction to ensure that the biggest polluters do not enjoy windfall profits." Revenues from the auction have been estimated at anywhere from $50B to $300B per year, but the official estimate is $79B in 2012 and growing slowly.

The Budget proposes that $15B/year would "fund vital investments in a clean energy future," and the rest would "be returned to the people, especially vulnerable families, communities, and businesses to help the transition to a clean energy economy."

Assuming full carbon coverage, the price of permits assumed by OMB must be about $13/ton, or $0.13 per gallon of gasoline. According to an earlier MIT report this is about four times too low. However if enough money is spent by the government on targeted projects, such as subsidized wind, it is possible to achieve the targeted carbon reduction of 83% in 2050 with a carbon price.

Returning $60B/year (or quite possibly $160B/year) to vulnerable families, communities and businesses, will be a hugely contentious process. For one thing the businesses hardest hit will be independent coal-fired power plants, the polluters that the auction seeks to avoid. This is also the one group whose losses are most easily calculated.

A terrific speech by Obama. But since I'm tracking energy I must point out that cap and trade is going to do him no favors in Copenhagen in December (that's son-of-Kyoto and it looks to be another one of Dr. Frankenstein's monsters). Its job is to ... patch together pieces of US environmentalists, with Chinese, and Indians, who are saying "read my lips." They are right. Cap-and-trade would be completely unfair to them, or do nothing at all.

I share this view with the liberal Nobel prize winner Joseph Stiglitz, the top energy economist for the last 30 years, William Nordhaus, and the well-known conservative economist Gregory Mankiw. This is not a political matter. If you just do the numbers, caps do not work for the developing countries, and they understand that well. The have said they are willing to make commitments, just not that one. Why are we so stubborn. There is another path to effective carbon pricing, but EDF is blocking it.