Are we going to pass cap and trade? What % of allowances will be sold as oppose to given away? Will it really help environment or maybe global warming is a myth? Is EU ETS system a success or is it a failure? Lets discuss
The idea of cap and tax would have an impact on the US carbon footprint and help the environment but practically speaking it is not likely to help since producers can shift production/find loopholes/etc) The idea of cap and trade seems to be more of a myth for actually helping the environment I think the two important factors are developing a system that accurately measures a producers carbon footprint (seems incredibly difficult) and setting a societal cost/market price on a specific measure of carbon emission.
As JasonU said, whether global warming is myth or not, there is an external cost of carbon emission borne by society and it may be time to internalize this cost. I may have a dumb idea, but why not estimate and put a rating on various kind of plants/machines and charge the emitters that way. This may still need bunch of regulators, but standardizing this based on industry may be more practical than measuring the emission.
The carbon trade does provide incentive to reduce carbon footprint and earn revenues through sale of carbon credits. But I guess some companies would continue with their polluting ways and just buy sufficient credits to cover their tracks. So they would have not necessarily reduce emissions and even if any reduction occurs it would be to a level where it meets requirement and nothing below that. I think cap and trade would have some benefits. Emergence of green labels/brands and their acceptance by the public would drive things much further. Toyota Pirus is a case in point. Not sure how the carbon credit trading would work though. There were some reports that some senators wanted Goldman and JP. Morgan to be kept out. They didn’t want speculative trading and seemed to push to limit access to end users who required these credits. I am all for a system similar to commodities market.
The trading option definitely seems superior to the taxing option. For one, you could have a cap, and then a Fed-like bank that can help to regulate prices within that cap. Suppose you had a tax… how would you decide what the appropriate tax rate would be? Ok, some scientific study, interest group bickering, etc… But next year, when the emissions are still high, you have to readjust it. Pretty much every year you are going to have to revisit what you think the right price is, and every year, you will have people lobbying saying don’t tax, tax is bad, tax yuk tax puke tax bla bla bla. If you have a tradable market, you set it up, and the price gets regulated by supply and demand for the credits. If scientific evidence comes up saying you need to cut more, then the government goes out and buys up credits on the market. Yes, we pay more for stuff under either system, but we do need to internalize climate change costs into our pricing system, and the price for carbon also creates stronger incentives to come up with alternatives and carbon-reducing technologies. Its also true that more of the costs of carbon adjustment somewhere in the private sector under trading rules (i.e. although someone starts to pay for carbon, someone else in the private sector also gets paid for it). Auctions are the most sensible way to distribute carbon credits initially, but there is some argument for a kind of grandfathering of industries at current levels at least until knowledge of how the trading system works is better disseminated throughout the economy. One of the problems of privatization in Russia was that small differences in knowledge at the outset could lead to huge differences in ending wealth and the creation of oligarchs. Commoditizing carbon is similar to the privatization of a previously public good, and while making carbon tradable is not as big a change making the Soviet Union’s entire economy tradable, it does touch on enough of the economy to end up being a big thing. Having all carbon credits in the hands of only a few industries is undoubtedly handing them a lot of market power.
Bchadwick based on everything I’ve read I think you’re misunderstanding “cap and tax” vs. “cap and trade” Both systems allow trading of carbon credits, its basically just a matter of whether it is incremental profitability or incremental expense. In cap and trade you are setting a cap (at around current levels) and saying if you can lower your footprint you can sell your excess carbon credits for profit. What this is saying is we (the government of the united states) are building into your company results a boatload of real/fictitious profit (based on your political view) because something you have been getting for free (the social cost of emitting shit tons of carbon) is now recognized as your allowance. In cap and tax you are setting a cap (below current levels) and saying if you don’t lower your footprint, you will need to pay for the social cost of emitting shit tons of carbon. I think the second one is a much better “incentive” to lowering carbon emissions… because it forces you to or else you pay for it. That said it gets back to my original message - the 2 major keys are you need to come up with a price (societal cost) of carbon emission, and you need to be able to accurately measure it