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Tilting at Windmills

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May 8, 2008
By: Kevin Drum

THE 100% AUCTION....Wait a second. Via Ezra Klein, Howard Gleckman of the Tax Policy Center has this to say about cap-and-trade schemes for addressing global warming:

Cap'n Trade would work like this. The government would require companies to obtain permits that give them the right to emit a fixed amount of greenhouse gasses. The limit on emissions (the cap) would be gradually ratcheted down over the years until the overall amount of schmutz reached some agreed-upon level. A relatively clean company could sell (trade) its unused rights to pollute to a dirtier company.

The candidates have not said how they would distribute these permits. But they only have two choices. The government could auction those mandatory licenses, a process which would look an awful lot like a tax....Or, Washington could give the permits away based on prior energy use, which would generate a massive corporate windfall.

Unless I'm missing something, this just isn't correct. It's true that John McCain hasn't taken a position on how to distribute permits — though his past history strongly suggests that he'll go for the "massive corporate windfall" version. But both Barack Obama and Hillary Clinton have proposed cap-and-trade systems that auction 100% of all greenhouse gas permits. This is the very thing that makes their plans noteworthy.

A 100% auction is one of those technical details that usually gets lost in the shuffle of a presidential campaign. But it's not just a detail. It's the thing that distinguishes a real cap-and-trade plan from a fake one. Both Democrats have the beginnings of a real plan. The Republican candidate doesn't.

Kevin Drum 3:14 PM Permalink | Trackbacks | Comments (53)

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Sounds much like a FCC spectrum auction.

Posted by: Randy Paul on May 8, 2008 at 3:19 PM | PERMALINK

One question - how do you measure all the greenhouse gases emitted by a company? i.e. How are you going to enforce a cap and trade system.

By all I mean that greenhouse gases include more than just CO2. And just measuring fuel consumption isn't going to cut it with respect to companies that use other chemicals in their processing.

Posted by: optical weenie on May 8, 2008 at 3:21 PM | PERMALINK

My question on cap'n trade schemes is: does the automobile travel of employees to and from work count?

In a city like LA, this could make a huge difference, if for instance, westside studios figured they should give BLT workers living nearby preference over staff and crew living in the Valley or further.

Posted by: Chasm on May 8, 2008 at 3:21 PM | PERMALINK

Optical: Inkblot has a very thorough and vetted plan for figuring this out.

Real answer: it's hard, but doable. And one of the tricky parts is how to account for different gasses. Methane, for example, accounts for a fairly small portion of GHGs, but on a per-unit basis it's more dangerious than CO2. So do methane permits costs twice as much as CO2 permits? Four times as much? Or what?

For that matter, even with a 100% auction, different types of auctions will produce different prices. All by itself, it's not enough. But it's still the right starting place. Obama and Clinton understand that, but I doubt that McCain does.

Posted by: Kevin Drum on May 8, 2008 at 3:25 PM | PERMALINK

The idea of "costing" gases based on their global warming potential is good - and the analytical spectral information required to do that is there for a good number of species - say about 500 or so. Still there are several 10's of thousands for which the info is not there. Although we could probably put a lot of quantum theorists to work estimating the potential

But my question is, how to you measure all the gases emitted? As a person who has fielded a number of instruments designed to measure gaseous emissions, I can tell you it is pretty damned tough to measure everything that is being emitted all at once from a building. If fact it is sometimes difficult to even measure anything at all. Seriously, not all the gases go out one stack, and more importantly, the wind never always blows the right way.

Posted by: optical weenie on May 8, 2008 at 3:35 PM | PERMALINK

And just to beat Thersites to the punch - no I do not specialize in farts.

Posted by: optical weenie on May 8, 2008 at 3:40 PM | PERMALINK

Kevin wrote that a 100 percent auction of GHG emission permits is "the right starting place. Obama and Clinton understand that, but I doubt that McCain does."

Which "starting place" is "right" depends on what your goal is. If your goal is to actually reduce emissions through a mechanism that imposes the least cost and gives the greatest benefit to the American people, then certainly a 100 percent auction, with the proceeds going to fund the development of alternative energy and efficiency technologies, and to provide assistance to lower-income consumers who will be harmed by higher energy bills, is the "right place to start".

However, if your goal is to protect the wealth and power of your cronies and financial backers in the giant fossil fuel corporations, at the expense and to the detriment of the American people, then it isn't.

Posted by: SecularAnimist on May 8, 2008 at 3:41 PM | PERMALINK

"Companies are free to buy and sell [Carbon] allowances"

From Obama's website.

I will likely vote for Obama, but he is simply stupid and I hope his economic adviser figures this out. You and I are the ones who have to trade carbon also, not just companies.

The whole premise stands or falls on my ability to not drive and collect compensation. Having the feds set carbon caps won't work, because in the long run, I am the user or unuser of carbon.

The feds only burn about 25% of the green house gases, the state governments burn another 20% of the GHG in this nation. But, of the 65% in pollution that the private sector is responsible for, I want my individual share of the compensation, I am the one doing the damage or receiving the damage.

Obama's problem is that he is stupid, but at least he knows he is stupid. His economic adviser knows better.

Nor did Obama aver figure out that governments make up 45% of the economy? I mean, how goddamn stupid does my future president have to be to fail simple math for the 40 some odd years he has been alive.

Posted by: Matt on May 8, 2008 at 3:45 PM | PERMALINK

Unless everybody colludes to low bid during the permit auctions. Like the penny auctions of farms during the Depression.

Posted by: ferd on May 8, 2008 at 3:52 PM | PERMALINK

The government could auction those mandatory licenses, a process which would look an awful lot like a tax....

And it would look even more like a user fee--a cost imposed on those who actually use a public commodity. Also, it would more closely resemble the actualization of an external cost--the cost to the American people of companies dumping their waste into OUR air.

I thought conservatives were supposed to be all about accountability and responsibility. I'm starting to think they were just foolin' me.

Posted by: Quaker in a Basement on May 8, 2008 at 3:53 PM | PERMALINK

Also: Cap'n Trade is not synonymous with "cap and trade." I think Cap'n Trade is the leather-costumed host of a children's program, isn't he?

Posted by: Quaker in a Basement on May 8, 2008 at 3:56 PM | PERMALINK

" public commodity. "

Again, Quackers cannot do math.

It is 45% a public commodity, the amount claimed and owned by our government. The rest of the commodity we have assigned to ourselves.

You own 55% of the atmosphere above your head, a limited quantity. You own only that much because you assigned the other 45% to government, and it is government's responsibility to cut GHG on the part you assigned them. If government decides to waste atmosphere, then it is only because you do not believe that carbon is a problem.

Is GHG an externality? Absolutely not. There are actual people in this world who own that atmosphere, and they are polluting your section of the atmosphere. They do it because they think it is OK, after all, you let government pollute the 45% you assigned them.

Posted by: Matt on May 8, 2008 at 4:05 PM | PERMALINK

I must be missing something: I don't see how giving away the permits based on prior use represents a business windfall.

Every business has permits to pollute up to previous levels. Then the govt begins to restrict, each year, permitted amounts by some percentage. Businesses buy/sell permits based on their individual cost/benefit analysis.

So it could reduce pollution, but wouldn't generate tax revenue. And wouldn't "internalize" the negative externality, as they say. But the businesses wouldn't be profiting in any way, any more than they do now (by socializing the costs of externalities).

Posted by: flubber on May 8, 2008 at 4:11 PM | PERMALINK

Weenie: And just to beat Thersites to the punch - no I do not specialize in farts.

Aw shucks. And I though you weren't speaking to me anymore.

My Ford Extinction does have dual tailpipes!

Posted by: thersites on May 8, 2008 at 4:13 PM | PERMALINK

It's a windfall because the right to emit carbon dioxide has significant value. So if a new business wants to start up, and they generate GHG, it will have to pay its competitors in order to do so. In addition, the value of the permits tends to be greater than the costs imposed.

Posted by: BP in MN on May 8, 2008 at 4:19 PM | PERMALINK

Don't bother mentioning that although a fully auctioned c&t system would "look an awful lot like a tax" it would be incredibly worse in practice. The best-case scenario is that it exactly mimics a tax, but we know that won't happen. Cap & trade won't work, and we shouldn't be wasting our energy promoting a bad idea.

Carbon tax or nothing.

Posted by: Mario on May 8, 2008 at 4:23 PM | PERMALINK

Now we all know what the first action that progressives will demand. They will want government union exempt from cap and trade. School budgets, state employees.

They will say, it is a smll concession.

Economists will point out that giving government unions an exemption will immediately release China from 70% of the liability for their GHG, the net result is that progressive environmentilsts will have take away our right to stop GHG, force a much more dramatic increase in GHG as each country must bow to the demands of American environmentalsts and burn gas more inefficiently.

This is where Gore is going, he has a sustained effort to increase, not decrease GHG. Not because he is bad intentioned, but because he doesn't do math. Gores policies, to the extent they have been followed, have caused more turbulence in food and other areas of the economy, that he has, no doubt, already increased GHG.

Posted by: Matt on May 8, 2008 at 4:24 PM | PERMALINK

Unless I'm missing something, this just isn't correct.

WHAT just isn't correct? Are you saying that it's not Cap & Trade unless the permits are auctioned? If so, you're mistaken; plenty of Cap & Trade programs have worked that way, including the first round of the EU's CO2 program. Now yes, the first round of the EU's CO2 program was seen as a failure in part because of the massive corporate windfall (which also depressed the market signal in favor of green investment), but it was still a real Cap & Trade, in that not a soul doubts that over time, the program will rachet down the amount of CO2 credits available, and the only ways to comply are to either lower one's own emissions or trade.

So long as there is no "escape clause" that cancels the whole program, it is real Cap & Trade. It's just that versions that use 100% or some other high % of auctioning are more efficient, and place less burden on the taxpayer.

Posted by: tom veil on May 8, 2008 at 4:24 PM | PERMALINK

I'm not an expert in this stuff but it does seem as if Optical Weenie is right, that measuring output is difficult, whereas measuring input is a problem that's already solved. Every fuel source is metered.
Why not a carbon tax based on fuel consumption?

Posted by: thersites on May 8, 2008 at 4:28 PM | PERMALINK

A 100% auction looks nothing like a tax. It looks like a pure free-market system--the one thing feared most by those radicals who call themselves coservatives.

Posted by: xtalguy on May 8, 2008 at 4:36 PM | PERMALINK

What a bunch of crap. It is so disappointing to see that even Democrats have bought into this Ayn Randian "the free market will save us" nonsense. ***NEWSFLASH** - IT AIN'T TRUE! Conservatives will always find a way to game or cheat the system. It is in their vermin-like nature.

Tax the shit out of GHG emissions and watch them go away. Period. Taxes are to conservatives like sunlight is to a vampire.

Regardless of what that hideoous old douchebag Ayn Rand said, everything in the world should not be for sale!

Posted by: The Conservative Deflator on May 8, 2008 at 4:37 PM | PERMALINK

Both Democrats have the beginnings of a real plan. The Republican candidate doesn't.

That's because Republicans know that government isn't the solution, which is why I work in government.

Posted by: John McCain on May 8, 2008 at 4:39 PM | PERMALINK

Why not a carbon tax based on fuel consumption?

Uh, because that would be pricing in the negative externalities, which tends to puncture conservatives' notion of the world as their toilet.

You just don't understand white, rural voters, do you?

Posted by: Grand Moff Texan on May 8, 2008 at 4:41 PM | PERMALINK

Yes. How the funds for any cap'n trade, just like any tax, are extremely important.

Posted by: AJ on May 8, 2008 at 4:50 PM | PERMALINK

"Conservatives will always find a way to game or cheat the system. "

And so will progressives, both of whom have a vested interest in stopping the liability issues with GHG.

How many progressives are going to stand around while government hands a $2,000 GHG bill to individuals?

Nor does taxing work, because these same progressives and liberals will always compromise on delay so that their special interests are not hampered.

If GHG is to be managed, it is only because libertarians convince sensible liberals that the individual has the right to sue, and sue anyone responsible, for storm damage.

Congress needs to establish the tort rights in this matter, otherwise, anything else is simply designed to increase GHG. You have to match liability to damage on an individual basis. This puts it out of the hands of Congress where progressives and conservatives conspire.

Posted by: Matt on May 8, 2008 at 4:51 PM | PERMALINK

GMT, you could be right.

But it seems like any cap and trade scheme could be sold by the same conservatives to the same rural voters as a "tax on industry -- bad for America!" and generate the same opposition.

But maybe not. I do know people -- and they're not rural conservatives, but "educated" folk who ought to know better -- who are all in favor of regulating "industry" but won't change their own behavior.

Posted by: thersites on May 8, 2008 at 4:51 PM | PERMALINK

put me in the conservative 'tax on industry = bad for america' crowd--mostly because i'm conservative ...
won't the cap and trade system simply make the manufacturing and energy sectors more expensive / less profitable ?
in the near and medium term, wouldn't that serve as a 'disincentive' to manufacturing jobs that everybody complains about losing in ohio, michigan, etc during these political campaigns ?

Posted by: nitish on May 8, 2008 at 5:13 PM | PERMALINK


I know you are a conservative, but sometimes free markets work.

According to your logic, and most conservatives feel this way, if I steal from you, and violate your property, then government should let me off the hook because I might otherwise be disincentivized. I hear this shit from socialists all the time.

The intent of economic activity is to actually incentivize one party and disincentivize another. Really, your brand of socialism is simply not normal, we in fact do disincentivize people all the time.

You say, well, only government must be prohibited from adding disincentives. All you do with this brand of socialism is to encourage more nanny government from your friends at the Free Republic, the ultimate of our nanny socialist group.

If we want to stop conservatives from their continual socialism, then we must accept that an injured party is not denied his property rights because it violates some conservative socialist rule.

Posted by: Matt on May 8, 2008 at 5:29 PM | PERMALINK

It is silly to think it gives no incentive to say drive less. The refinery (or import terminal) has to purchase the permits, so the price goes up. For this reason -consumers of energy pay more, it can be demagog-ed as elitist. Another approach is cap-auction-dividend. The proceeds are given to the people, kinda like the Alaska permanent fund gives its citizens proceeds from investments of state oil money. That way the little guy, gets his check, so he doesn't have to feel screwed by the price of energy effect. By making it revenue neutral, you don't automatically burden the economy, you simply provide incentives for the right sorts of actions to be taken.

We could do something similar with gasoline, a high tax, whose proceeds are dividended back to the people. Those who use less than the average amount see that they are better off, and support the plan.

Posted by: bigTom on May 8, 2008 at 5:33 PM | PERMALINK

It's meds time.

Posted by: nurse ratched on May 8, 2008 at 5:40 PM | PERMALINK

And Hillary, our fake Yankee.

"A new cap-and-trade program that auctions 100 percent of permits alongside investments to move us on the path towards energy independence;"

Yet she never mentions how the federal government, itself, is going to sell itself caps. She has a contradiction, like Obama.

Think folks, why do you all think the legislative branch should handle this? Because all of you, in the back of your mind, are plotting to have your special group excluded. Conservatives want property rights extinguished by government, progressives want exceptions for their programs.

My plan is foolproof, because my plan was specifically designed to insure that I do not have a special exemption. My plan, using tort will take the problem completely away from me that I cannot fuck with it or cheat. I cannot modify the results, I cannot backtrack.

Posted by: Matt on May 8, 2008 at 5:53 PM | PERMALINK

Cap and trade is a market trick to avoid the fact that we are going to be out of oil in 30 to 40 years. Bone dry. The world oil "proven reserve" figures are available from the US Department of Energy. We need every drop of that oil to convert to a totally Solar-to-Electric, non-polluting society in the next Five Years. The cost will be enormous, as much or more than the War in Iraq. The existing technology is proven to work. We can cover less than 0.5% of the continental US to produce twice our current usage of electricity for all our needs, including electric cars, high-speed trains and buses.

I suggest that a massive solar to electric system like the Solar One Nevada or the Solar One Barstow sites be scaled up to meet all our needs.

Posted by: deejaayss on May 8, 2008 at 6:00 PM | PERMALINK

The best explanation of the options is an article in the Boston Globe at http://www.boston.com/bostonglobe/ideas/articles/2008/02/24/brother_can_you_spare_a_carbon_credit/

Very clear and goes beyond cap and trade to consider other ideas that are out there now.

Posted by: on May 8, 2008 at 6:05 PM | PERMALINK

As always, thank you for your analysis, Kevin!

Posted by: Marsupial Buber, Ph. D., M.D. on May 8, 2008 at 6:12 PM | PERMALINK

Every fuel source is metered.
Why not a carbon tax based on fuel consumption?

Posted by: thersites on May 8, 2008 at 4:28 PM

Because not every green house gas emission comes from an oil well. What are you going to meter the amount of grass that a cow consumes? Cows release a lot of methane, so do sheep, pigs, etc.

Also, there are several greenhouse gases that are not carbon based. NOx's contribute to warming, SOx to cooling (well sort of if they form aerosols).

A carbon based tax might do something to help the situation. But the best way to approach global warming, and this is just my opinion, is to start modifying our behavior now. Solar, wind, etc. can help us go a long way. And so can nuclear.

Posted by: optical weenie on May 8, 2008 at 6:23 PM | PERMALINK

I see your point.
So would you, for example, estimate a cattle herd's output based on some "average cow's" output?
I can see the advantage. Meats that generate more greenhouse gases, and are thus more inefficient as food sources, would be 'taxed' higher. Which might be a way to modify behavior.

Personally, I won't consider nuclear power as an option until we have a president that can pronounce the word appointing DOE officials.

Posted by: thersites on May 8, 2008 at 6:33 PM | PERMALINK

And let's not even talk about the energy used FeExing shoes back and forth across the country because someone can't make up their mind...

Posted by: thersites on May 8, 2008 at 6:45 PM | PERMALINK

It is worth remembering that most electricity in this country is generated by regulated utilities which are, by law, entitled to cost recovery. Many of these, particularly but not exclusively east of the Rocky Mountains, rely heavily on coal, which produces on average 208 lb of CO2/MmBTU burned (and current technology coal stations burn in the range 7,500 to 8,500 MmBTU per MWh of electricity generated. Natural Gas is a bit better: "heat rates" lower at around 7000 MmBTU/MWh, and with lower CO2 content, of around 117 lb/MmBTU.

The cost of carbon permits, either through an auction or a sale, is really substantial, especially for fossil-fuel-dependent generators and (by law!) their customers (i.e., you and me).

I have simulated this for a medium-sized coal-dependent utility in the southeast, which has the option of building new carbon-efficient generation (which today is likely to be nuclear). The present-value cost of serving load from 2013 to 2030, given a carbon "allocation" starting at 60% of estimated historic CO2 emissions, declining to 0 in 2029, is about 54% higher than it is under a "free carbon" case. I have not run a "no allocation" or a "full allocation" case; my model is a mathematical optimization and we will get the same physical results (capacity expansion and station dispatch) no matter what the allocation---or, for that matter, with a tax set at the forecast price of carbon credits.

"Windfall?" Sure, at a 100% allocation. At a 0% allocation ("pure auction") we are looking at some combination of a large hit on utility equities and a large hit on rates, or more likely both (as in: bankrupt utilities followed by public power successors with high internalized carbon costs).
But I see few windfalls here.

In Europe, btw, the big "windfall recipient" were the cheese eating surrender monkies. Electricite de France generates mostly nuclear with some hydro power for peaking and load following. European power prices jumped up by approximately the priced carbon content of marginal thermal power...but EDF's costs stayed constant. The potential recipients of such a windfall in North America are the large, mostly public, hydro generators: Bonneville Power Administration and Western Power Administration in the West, and Canada's provincial power companies. And I suppose whatever First Nations groups up north have been bought off with a piece of the action.

But what do I know. I'm just a steenking elitist economist, and Real Populists don't have much truck with pointy heads like me.

Posted by: Marcus Sitz on May 8, 2008 at 6:50 PM | PERMALINK

Estimate amount average cow, sheep, etc emits is a good way to start. And then I guess, so that the rancher/farmer doesn't get dinged for the tax bill, we could add a carbon tax per pound of meat consumed. That should make SocraticGadfly, or is it Secular Animist, whomever is the vegan, happy.
But then would also have to do that for veggies and legumes and fruits too - since they "consume" carbon in the form of fertilizers, harvesting equipment, irrigation water, etc. Sorry vegans.

And I didn't get the Manolo's you sent. Didn't I say not to buy them? It is flip flop season, and I have enough pairs already - at $1.50 a pair I have all the colors of the rainbow!

Posted by: optical weenie on May 8, 2008 at 6:53 PM | PERMALINK

No matter how you slice it ----

Cap and trade is a carbon tax and a huge federal agency to regulate things.

The agency would be far smaller if we just taxed carbon.

Posted by: neil wilson on May 8, 2008 at 6:54 PM | PERMALINK

You make excellent points, and provide data too! ooooohh, I almost wet my pants!

And the cheese eating surrender monkeys had, and have, the right idea. Nuc is an option that we can't ignore. Sorry folks. What we need to do with is figure out how to get rid of the waste. Just thinking only about using Yucca Mountain has been a set back. Other options should have been considered along the way. Let me stick my head out here and suggest we send it way out in space. This would at least give NASA an extra slice of research money that they so desperately need right now.

Posted by: optical weenie on May 8, 2008 at 6:59 PM | PERMALINK

If the shoes ever do show up, just feed them to the goats and charge me for the extra flatulence. They were knockoffs anyway. I've got a Ford Extinction to feed, y'know.

Posted by: thersites on May 8, 2008 at 7:06 PM | PERMALINK

You don't have to tax sunlight--or work up elaborate trading schemes.

Nuclear is not really an option. Sources of high grade uranium ore are limited to a 75 year supply. Fossil fuels are necessary to mine the uranium.

Oil will be gone in 40 years tops. See:

We are using a thousand barrels of oil every second. That's a 42 year supply, if you don't count demand from developing nations.

Build the totally renewable solar to electric system now or revert to a feudal social structure.

Posted by: deejaayss on May 8, 2008 at 7:08 PM | PERMALINK

Cows and goats, and other ruminants, do not fart CO2, they burp it. Like beer drinkers do!

Your hops are about 4 inches high. Only a few more months now!

Posted by: optical weenie on May 8, 2008 at 7:09 PM | PERMALINK

Nuclear is no panacea, for sure...although I have little confidence in any estimates of the duration of the uranium supply. It is, however, the most immediate way of reducing GHG. Stopgap measure, perhaps.

As to solar, certainly PV doesn't do it unless you figure out how to store the sunlight. Arrays that are used to heat water get around that problem to some extent.

Of course being an egghead I like high energy prices, because they send a nice signal for the only really green energy, which is conservation.

Posted by: Marcus Sitz on May 8, 2008 at 7:19 PM | PERMALINK

I'm still trying to figure out how an auction and a tax are the same thing. Isn't the whole point of a tax that everyone in a certain group pays the same thing, but the point of an auction is for someone to get a privilege that others don't have?

So how does an auction "look an awful lot like" a tax? That seems to be like telling me an orange looks an awful lot like an apple -- look, they're both fruits, so they're the same thing!

Posted by: Mnemosyne on May 8, 2008 at 8:15 PM | PERMALINK
The candidates have not said how they would distribute these permits. But they only have two choices. The government could auction those mandatory licenses, a process which would look an awful lot like a tax....Or, Washington could give the permits away based on prior energy use, which would generate a massive corporate windfall.

While those are the two conventional suggestions for cap and trade, they certainly aren't the only possibilities. For instance, the federal government could annually distribute the credits equally to every adult citizen, and then allow citizens to use them (unlikely for most individuals) or to transfer them (by gift, sale, auction, or however) to others, presumably usually corporations, who would use them. This may be more attractive than a government auction to liberals who don't want corporate lobbyists to have the opportunity to capture the process of using the proceeds, or conservatives who dislike "big government".

Posted by: cmdicely on May 8, 2008 at 9:00 PM | PERMALINK

Any scheme to be realistic has to have a some sort of corporate windfall or you will see massive price hikes on the day the scheme comes into effect and will cause enormous disruptions to supply and strange things like the value of coal power stations halving overnight. The corporate windfall is a necessary economic reality.

The real question is how it is supplied. In Europe it was decided to give away emmission permits to big emitters to deal with this. It didn't work very well mainly because no-one really knew what was a fair amount to compensate the big emitters with.

The other alternative is to 100% auction the permits and then to give cash compensation to the big emitters. This seems like it will work better and is the approach that will be recommended by Professor Garnaut for Australia's carbon emitting scheme. It has the advantage that rather than a big one off give away at the start of the scheme can give the compensation annually and gradually reduced. I suggest you read this piece http://petermartin.blogspot.com/2008/03/garnauts-emissions-trading-scheme-work.html to get a better idea of how this works.

Your post makes it sound like you need to do alot more research into emissions trading schemes to understand them properly. I suggest you get on with it as you don't want the power companies to pull a swift one you.

Posted by: swio on May 8, 2008 at 9:05 PM | PERMALINK
Unless everybody colludes to low bid during the permit auctions.

If the auctions are done properly (i.e., the units auctioned are small enough and the auctions aren't artificially restricted), this is controlled by the willingness of environmental groups and even individuals to bid on permits simply to restrict the amount of allowed pollution; OTOH, unless the penalties for violating the caps are nearly certain to be applied and substantial compared to whatever the cost ends up being of purchasing credits, the caps themselves will be effective and the trading a sideshow. The difficult bit of cap and trade, just like any system of pollution limitation, is the enforcement regime; often, proponents of cap and trade present it as if it were an alternative to a vigorous and active enforcement regime, but that's certainly not the case.

Posted by: cmdicely on May 8, 2008 at 9:15 PM | PERMALINK

One question - how do you measure all the greenhouse gases emitted by a company? i.e. How are you going to enforce a cap and trade system.
Posted by: optical weenie

It's like income tax: everybody cheats a little, but gross fabrications are more likely to be caught and punished.

Posted by: Luther on May 9, 2008 at 1:31 AM | PERMALINK

cmdicely: given that the average Joe Sixpack can't manage their bank account, how in the heck do you expect them to manage trading carbon permits?

Posted by: Robert Merkel on May 9, 2008 at 2:17 AM | PERMALINK

The alternative to Cap'n Trade, of course, involves a cap on emissions and bulldozing plants that do not comply (Cap'n Crunch).

Posted by: rea on May 9, 2008 at 7:26 AM | PERMALINK

Taxing carbon emissions sounds good, but I'm concerned about diamond merchants and most especially pencil and crayon manufacturers. Should I sell my pencil and crayon stock and invest in pens?

Posted by: Tripp on May 9, 2008 at 11:56 AM | PERMALINK



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