I’m all for protecting the environment, but it’s a problem that the U.S. cannot solve alone, all nations MUST participate in order for it to work! If you keep shipping jobs over seas, you don’t gain control over the environment, you lose it!

Let’s escalate this to the UN and Nato for a start. America cannot go at it alone! In the meantime, let’s stop giving away our leverage by shipping the polution (and jobs) elsewhere!

Greg Spence
gspence11@aol.com

Cap and trade is far more complex. It involves setting up an auction system for permits and a fairly complex set of rules about trading. Also, if offsets are allowed, there are HUGE enforcement and oversight issues that require monitoring features like “additionality” of CDM projects. A carbon derivative is being created at point in time in history in which the usefulness of derivatives has come under fire from Main Street and a boatload of financial analysts and economists. It’s as though “market based cap” advocates have not read any one of the many accounts of our current financial crisis that they could find in their local newspaper.

And the complexity only grows when you go from the macro to the micro level. Your very misleading and simplified picture is only looking at these systems from an idealized macro vantage point. At the micro level, cap and trade introduces a lot of chaos as the value of permits varies a great deal. Only large corporations will be able to deal with the complexity of making assessments of the value of permits and the need to purchase permits. This is why some of the biggest emitters are in favor of cap and trade because it strengthens their own competitive advantages.

A carbon tax system is going to provide a great deal more price certainty at the micro-level which is much more important from the point of view of cutting carbon emissions. Carbon emissions are cut via carbon pricing systems not by policy makers pledging to cut carbon a certain amount and issuing or auctioning permits but by market actors assessing the value of carbon to them and making investments in emissions-reducing technologies. Regulators are not going to be able to shut down a utility if they go over their permit allocation, thereby causing black outs and cuts in essential services.

Cap and trade creates an artificial permit market that interferes with the real market for emissions-reducing solutions by inserting permit price volatility and market game-playing as an overlay over the carbon price.

You are not thinking through how cap and trade will actually work and instead are looking at the policy on the “brochure level”. If you want to drive the market for lower carbon technologies, an ascending carbon tax will work much better. The certainty of quantities of emissions that cap and trade offers politicians on the “brochure” level can only work if cap and trade works as a virtual carbon tax with a very narrow permit price range and penalties that are prohibitive and, in some cases, politically unacceptable. Simply adjusting the carbon tax rate up will be a more flexible and effective way to reach emissions targets.

However, it is my belief that directive clean energy and energy efficiency incentives plus disincentives will get us there much faster than either just a tax and definitely faster than cap and trade. An ascending tax alone or an ascending tax plus incentives is less “punitive” to industry than cap and trade, which is now turning into, and will become still more of, a mess.

This does not change the fundamental difference between a carbon tax and cap-and-trade.

Under a carbon tax governments set the price of emitting GHGs and allow the quantity to be determined by the market–i.e. at a price of $20/ton people will emit Y quantity of GHG, at $40/ton the amount will be less.

Under a cap-and-trade system governments set the total quantity of GHGs that can be emitted and allow the price to be determined by the market–we issue 700 Mt of permits and that results in a price of P dollars per permit.

Since we want to lower emissions to a certain total level–rather than impose a certain predetermined price–it makes far more sense to adopt a cap-and-trade policy.

Supporters of the carbon tax generally support it because its name somehow sounds tougher. Well, its name is also less popular, so let’s just get on with the less easily opposed and smarter solution.