Among the complex aspects of the recently passed Waxman-Markey climate change legislation (H.R. 2454) is its formula for distributing emission allowances. Beyond the sectoral allocation of free allowances for the first few years of the cap-and-trade system's operation, what else does the bill entail for allowance allocation?

Where the bill ended up might, or might not, seem predictable--depending on your cynicism (or realism) about congressional politics. If you took candidate Barack Obama at his word, you may have expected greenhouse gas (GHG) emission allowances to be allocated entirely by auction. Candidate Obama was quite definite in his endorsement of this approach.

What's more, President Obama, in the first months of his presidency, seemed to stick to candidate Obama's position. While committing to spend vast sums under his stimulus package, President Obama forecast the federal government's collection of substantial revenues from the auction of GHG emission allowances, though not substantial enough to offset all the stimulus spending.

But President Obama is not doctrinaire. Or put less charitably, President Obama is willing to accept political compromise if such compromise results in legislative success. In the case of climate change legislation before the U.S. House of Representatives, such success resulted in a hybrid of free and auctioned allowances, with more free allowances in the early years of implementation and moving to a greater proportion of auctioned allowances over time.