Leigh Raymond
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- Name: Leigh Raymond
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Some benefits of Cap and Trade
Very interesting thread and discussion. A few comments:
- Existing cap and trade programs work very well, sometimes, and involve far more than a "few dozen" utilities as the original author states. The SO2 trading program starting by the 1990 Clean Air Act Amendments has several thousand affected units, has had virtually 100% compliance every year, and has substantially reduced SO2 emissions. It is widely hailed as a success. Richard Cohen has written a very good book on the story of its passage entitled "Washington at Work: Back Rooms and Clean Air"
- The issue of elasticity is an important one, and energy demand does appear to be very inelastic, although less so over longer time periods. However, I would argue that this is actually an important advantage of cap and trade over a carbon tax: the cap fixes the total pollutant loading, regardless of demand. Thus, cap and trade fixes the environmental pollution level while letting the price of polluting float. Of course, this can also be seen as a disadvantage if you are worried about potentially sky high carbon prices by setting the cap too low. But for many, a major appeal of cap and trade is it imposes a "hard" limit on emissions, rather than an uncertain one as with a tax. (All of this assumes that fines for noncompliance with the cap are high enough avoid becoming a de facto "tax" rather than a hard cap - this has worked with SO2, where fines are far above the market price for emissions).
- I would argue that right now, the key is getting a price on carbon--by any mechanism possible. Both a tax and cap and trade would do this. They have different detailed advantages and disadvantages that are important, but we would be far better off with either than with neither. The issue of what to do with the revenue from the tax or the distribution of permits is also crucial in either system, and the push to make such systems more revenue neutral is a positive one. This was totally missing from the 1990 SO2 debate. Notice, finally, for those skeptical that we will ever auction CO2 permits that the moderate Bingaman cap and trade bill in Congress includes a substantial portion of allowances to be auctioned - something that would have been unheard of in 1990. Some nations in the EU are starting to experiment with small auctions of some allowances under the EU ETS...
- Existing cap and trade programs work very well, sometimes, and involve far more than a "few dozen" utilities as the original author states. The SO2 trading program starting by the 1990 Clean Air Act Amendments has several thousand affected units, has had virtually 100% compliance every year, and has substantially reduced SO2 emissions. It is widely hailed as a success. Richard Cohen has written a very good book on the story of its passage entitled "Washington at Work: Back Rooms and Clean Air"