Several years ago I undertook an examination of the cap and trade systems that had been tried in the United States: leaded gasoline; sulfur (acid rain); smog (the Los Angeles RECLAIM program).  To the best of my knowledge, it remains the only truly objective critical examination of actual experience with trading.

The study results are posted below.  For those  interested in reading the entire report, about 140 pages, go to http://www.healthandcleanair.org/emissions/index.html.

And as you read this summary, remember there will b e no second chance to get it right with global warming.  WSe stop it, or we die.

Study Results

    Comparing and contrasting these programs revealed grave flaws common to all of them.  Finding the same failings in all trading programs--as well as evidence of the emergence of these failings in smaller or younger programs, even though they are for different pollutants, time frames and circumstances--suggests that the deficiencies are intrinsic to trading itself, not the result of faulty program design or implementation.
    Some of these failings have seldom, if ever, been discussed.  These failings will be explored in greater detail below, but briefly, they include the following:
    * Abandoning Protection of Health.  Implicit in trading of the "criteria" pollutants that cause sickness and death is the abandonment of protection of health as the single overriding objective of the U.S. Clean Air Act and air pollution regulation generally.  Instead of reducing pollution as fast as technologically achievable, trading allows it--and the illness and death that it causes--to continue for the express purpose of saving money for polluters.
    Trading Removes the Stigma of Pollution.      Air pollution kills and injures.  The stigma associated with such harmful action often acts as a powerful deterrent.  Trading affirmatively sanctions pollution, thus removing the stigma.
    * Killing Environmental Innovation.  Because trading focuses solely on reducing a single pollutant by an exact date and a precise amount at least cost, technologies and practices that deliver multiple benefits--new ways of burning coal, for example, as well as conservation and renewable forms of energy--are frozen out of the market.  While trading stimulates cost innovation, it has the opposite effect on environmental innovation, suffocating emerging technologies.
    * Trading Rigidity Bars Mid-Course Adjustments.  Trading  provides polluters with a degree of flexibility in choosing the means by which to reduce a pollutant and, to some degree, the timing. It is otherwise rigid, however, so as a practical matter it becomes impossible to adjust goals based on new information--new technology, for example, or the discovery of more substantial injuries.
    * Delay and Under-Control.  Emission reductions under trading regimes are uniformly smaller and later than they otherwise would be.  In the case of leaded gasoline, for example, the United States required 23 years to eliminate the fuel, which China accomplished in three.
    *  Fraud, Malfeasance and Secrecy.  While emissions allocations are public, trades and prices are not.  As a result, fraud is a constant threat.  In two of three trading programs examined, there was documented fraud, while the third has not been officially scrutinized.
    * Converting a public good to private property.  The effect of trading is to convert a common good--clean air--into a sump for waste by creating and then conferring on polluters the right to use it to dispose of their pollution.  Thus, what once belonged to all--air quality--is converted to private property.  The explanatory language accompanying one program, acid rain, characterizes this property as "right," while in others it is an undefined privilege conferred on polluters.
    * Health and Environmental Objectives Are Not Achieved.  In every case, trading failed to produce reductions required to protect the resource in question, requiring recourse to the very command and control mechanisms crafters had sought to avoid.

Curtis, thanks for the observations and the study.  I'm been thinking about this for some time and have just about concluded that carbon cap-n-trade is a dodge by which the powers that be hope to continue business as usual, only with bigger bonuses.

Look at Jon Rynn's tables and what you immediately realize is that even the most aggressive traders only propose involving a tiny fraction of emitters, and that every one of them will justly be able to howl about how they are "only a small contributor."  And so we're going to see lots of dodges like circuit breakers that will relax standards if prices go too high.

Obama told the WAPost yesterday that he's going to go after "entitlements" reform, which is a terrible sign unless he is ready to pull a rabbit out of his hat and propose carbon-tax-and-rebate, because otherwise the bloodshed caused by fighting over social security and medicare --- in the wake of having shoveled trillion of dollars at business with no strings or accountability --- will consume them.  The climate response will become just another policy initiative and we'll be toast.

The 5% Project Let's live on the planet as if we intend to stay.

Cap and trade turns a sow's ear into a silk purse--one stuffed with money.  Two examples:

Example 1: When the the world banned chlorofluorocarbons (CFCs) because they destroy stratospheric ozone, industry switched to hydrochlorofluorocarbon (HCFC)-22. (This was made possible because DuPont, NRDC and EPA went behind closed doors and renamed the chemical from CFC-22 to HCFC-22, subject of a piece I wrote in 1989 for The Washington Post, "McTruth: Fast Food for Thought," but that's another story.)

Making -22 produces HFC-23 as a waste byproduct.  It's a very, very powerful cause of global warming.  No big deal; just incinerate the -23. But if the incinerator is installed when the -22 plant is built, it costs about $5 million and is worth nothing as a trade.  Build the plant without an incinerator, however, then retrofit it with one, and the destroyed -23 can be traded for $500 million.  Not surprisingly, the Chinese build their -22 plants initially without an incinerator, cut a deal to install one and voila! somebody makes a $495 million profit.

Example 2: one of the Kyoto gases, SF6, is used as an insulating fluid for circuit breakers, switchgear, and other electrical equipment.  Old equipment may contain 100 pounds of SF6, but new versions have only, say, 1 pound. SF6 is the most potent greenhouse gas that has been has been evaluated, with a global warming potential of 22,200 times that of CO2 when compared over a 100 year period.

So your local utility has an asset that could easily be drained and destroyed at very little cost.  But if it is drained and destroyed as part of a cap and trade system, and a ton of CO2 is worth $10, a ton of SF6 is worth $222,000.

There are many, many more examples of how cap and trade makes polluters rich.  If you were them, wouldn't you support cap and trade? Maybe that helps explain why DuPont, which invented and made the CFCs and HCFCs that not only destroy strat ozone, but cause global warmin g supports cap and trade.  Maybe it also explains why several utilities support cap and trade.

What it fails to explain, however, why the people being appointed by Obama; and the Chairs of the respective House and Senate Committees; and some environmental organizations like NRDC and ED; and California politicians like Arnold Schwarzenegger, all support trading.

For more information on how companies plan to profit from our deaths from global warming, go to http://www.saving-ourselves.com/.  We can save ourselves, but only if we act now--and screw cap and trade.

The Chattanoogan has Republican Senator Bob Corker saying this:I could support a simple, transparent cap-and-trade system that focuses on auctioning emission allowances, returns all the revenue generated from those auctions to the American people, and doesn't allow loopholes such as offsets to weaken the market system.

"I also support exploring the concept of a carbon tax that returns all generated revenue to the American people as a more efficient and transparent way to address carbon emissions." Delay tactic? Seen the light?

Most economists like carbon taxes better than cap-and-trade because they're simpler, more transparent and don't create price volatility and aren't as easily gamed.

Most (but not all) politicians like cap-and-trade, because it hides the price from the public.  The word's getting out that cap-and-trade is really a tax; maybe now we can listen to what the economists are saying and compare the two approaches without hiding. See http://www.carbontax.org.

And if we just have to do cap-and-trade, what about a price floor?  With a sagging economy driving down carbon emissions, the cap isn't likely to be a real restriction for several years.  A price floor, like a carbon tax, would create incentives for innovation and conservation measures now, even before economic growth resumes and we approach cap limits.

Most economists like carbon taxes better than cap-and-trade because they're simpler, more transparent and don't create price volatility and aren't as easily gamed.

Most (but not all) politicians like cap-and-trade, because it hides the price from the public.  The word's getting out that cap-and-trade is really a tax; maybe now we can listen to what the economists are saying and compare the two approaches without hiding. See http://www.carbontax.org.

And if we just have to do cap-and-trade, what about a price floor?  With a sagging economy driving down carbon emissions, the cap isn't likely to be a real restriction for several years.  A price floor, like a carbon tax, would create incentives for innovation and conservation measures now, even before economic growth resumes and we approach cap limits.