The problem with a carbon tax, or any other form of carbon pricing, is that it's extremely regressive.  The people at the bottom of the socioeconomic pile see their costs rise the most, as a fraction of total income, but are the least able to make the investments required to reduce their energy use (whether that's buying a new car or moving closer to their work).

If the rebate is proportional to use, then I agree with you: the measure shoots itself in the foot by destroying the incentive to conserve.  But if the rebate is flat -- everyone gets the same amount back -- then you're getting somewhere.  Under a flat rebate, the impact of the increased cost of energy to the consumer is softened without destroying the incentive to conserve.  Under such a system, a consumer who uses little energy can actually see a net economic benefit to themselves.

Even if the rebates aren't flat, the utilities themselves are still going to be paying over $5 a ton for credits, which will be a strong incentive to use low-carbon energy sources on the supply side.

Electricity consumption is relatively price-inelastic - that is, prices (or rebates) generally won't affect consumption that much. But electricity production should be more responsive to changes in the carbon credit market - especially given the rising prices of fossil fuels and the broadening availability of renewables.

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In other words, if the state has receipts from RGGI that they feel need to be distributed, the most economically responsible use for them is to distribute them to those who are taking actions to reduce GHG emissions.  That converts an energy tax into a wealth transfer that - theoretically - could be net-neutral on energy prices while driving GHG down.  If instead they use the proceeds to address issues of regressivity, they simply ensure that there w ill be regressivity issues to be addressed.

And also bear in mind that reducing the regressive impacts of energy use is incompatible with putting a price on carbon.  I take your point that the mathematical link might not be dollar-for-dollar, but that doesn't change the fact that the one is at odds with the other.

Here's the release from the website of state environmental groups:

Clean Water Action - Environment Connecticut- Environment Northeast

Governor Rell Plays Politics With Global Warming
Changes Demanded by Governor Hurt Consumers, Undermine Global Warming Pollution Cuts, Contradict State Law

July 7, 2008

Hartford - Environmental groups denounced Governor Rell's decision to attempt to alter the Regional Greenhouse Gas Initiative (RGGI) global warming regulations which she had already submitted for final approval to the legislature's Regulation Review committee. RGGI is a regional agreement creating a cap and trade program for global warming pollution emitted from power plants in Connecticut and other Northeastern states. Implementing RGGI is a critical step towards achieving the mandatory global warming pollution cuts the Governor signed into law in June.

Governor Rell's Comic "Relief" Proposal Harms Consumers
Governor Rell's decision to try to alter the RGGI global warming regulations at the 11th hour threatens to delay Connecticut's participation in the cap and trade program to cut power plant emissions and divert funding away from programs that help consumers and businesses cut electric bills through efficiency and clean energy investments.  Increases in electricity rates are primarily driven by increases in the price of fossil fuels, so policies to reduce fossil fuel demand benefit both consumers and the environment.  

"Every dollar diverted from efficiency programs under the governor's scheme ultimately costs consumers four dollars on their electricity bills. We estimate the "rate relief rebates" proposed by Governor Rell would save the average homeowner about $2.70 a year on their electric bill for every dollar that a ton of carbon exceeds the $5.00 threshold," stated Jessie Stratton, Director of Government Relations for ENE (Environment Northeast).

Governor Threatens Funding for Consumer Energy Efficiency Programs
As a result of soaring consumer demand for existing energy efficiency programs  CL&P faces a $20 million shortfall which has required them to institute a waiting list for the popular free Home Energy Solutions program and put business programs on hold for the year. The Governor's proposal would divert money away from these programs that cut electric bills for Connecticut's families.

"It's ironic that under the guise of helping consumers, Governor Rell would be robbing popular consumer energy efficiency programs of much-needed funding.  I think we can do a lot more to help consumers than giving them a rebate that won't even pay for the stamp on their electric bill.  With electricity prices high we need solutions that solve the problem and get us off of fossil fuels, not political posturing," said Roger Smith, Campaign Director for Clean Water Action.

The Connecticut Energy Efficiency Fund's (ctsavesenergy.org) Home Energy Solutions program provides residential customers with free in-home energy assessments that include weatherization help, rebates on insulation and EnergyStar appliances, and free compact fluorescent lightbulbs. Revenues from the RGGI auction can make these programs available to more customers and save them far more than any potential rebate.

"When the legislature required power generators to pay for their pollution there was a reason they directed the proceeds towards permanent lasting relief to consumers, rather than symbolic one-time rebates," Christopher Phelps, Program Director for Environment Connecticut.  "We need to invest in energy efficiency and clean energy to cut our electric bills and reduce global warming pollution."

Governor Rell Ignores Law, Circumvents Process
In a radical departure from ordinary procedures, at the 11th hour the governor issued a letter demanding that the Department of Environmental Protection rewrite their global warming regulation in a manner inconsistent with existing state law and submit it to the Regulation Review committee - possibly bypassing the normally required approval of the Attorney General.  Current law specifically mandates that revenue from the Regional Greenhouse Gas Initiative be used for four purposes: energy efficiency programs, renewable energy investments, demand side management programs and the administrative cost of running the climate programs.

"Governor Rell's DEP already issued global warming power plant regulations that are consistent with state law after holding public hearings and accepting public comments.  The Regulation Review committee should reject these last minute and illegal changes and adopt the regulations submitted by the Department of Environmental protection before political interference," said Smith.

"The Governor's proposal takes money away from programs that cut consumers electric bills and give rebates barely worth the price of a cup of coffee to Connecticut's families. That's not rate relief, it's a bait-and-switch," said Phelps.  "The Governor should stop playing politics with global warming and support the regulations she originally submitted to cut global warming pollution while also investing in the energy efficiency and clean energy programs Connecticut needs to secure a clean, affordable energy future."

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For reference, the full text of Public Act 07-242 related to the Regional Greenhouse gas Initiative (Sec. 93):
http://cga.ct.gov/2007/ACT/PA/2007PA-00242-R00HB-07432-PA ...

CT Energy Efficiency Fund: www.ctsavesenergy.org