wrdeer

Cap and trade the devils in the detail

In Uncategorized on December 7, 2009 at 11:43 pm

A cartoon Introduction to:  the problems with cap and trade.

Having looked into it I'm not a big fan of the current proposals for cap and trade.
This cartoon is a little oversimplified ( and polemical) but it does do a good job of explaining the basic worries about cap and trade proposals as they currently stand.

Overview

Capping is kind of a good idea – Permits to pollute issued starting at current levels, each year less and less permits issued resulting theoretically in less pollution.

Free permits to big polluters –  Gives permits to big polluters. Putting control of the slack in the system in the hands of the biggest polluters doesn't make sense but that's what they are proposing primarily as a sweetener to get project buy-in. This actually encourages polluters to lie (say they pollute more then they do) in order to receive more tokens that will be worth real money. Creating a system where known failures in the market make profits is asking for trouble. 
Working out carbon efficent ways of doing something then selling additional tokens to polluters to reflect the real cost would go some-way to remedy this situation but this is not whats being proposed.

Offsetting encourages pollution and cheating –  Companies that remove carbon get permits they can sell to polluting companies who can then pollute to the tune of the permits they posses. All polluters are not created equal nor are all offsets, wholesale cheating on both ends is very likely (based on observation of  existing schemes). 
What happens if a profitable but very heavy polluter buys the permits and non are available for competing less heavy polluters? they go out of business creating a market that rewards heavy pollution in the short term. The market failures don't just cost money they mean more time lost in meeting an urgent challenge. If the offset idea is going to work (prevent cheating , dumping etc.) then it is going to have to be regulated within an inch of its life across all countries around the world. Is world governance in a state where this is going to happen? I don't think so.

Distraction –  Relying on cap and trade risks stopping us from actually addressing the problems we know about with any urgency.  If we believe the market will solve the problem for us down the line high investment projects that need funds now will starve.  Carbon is important but its not the whole ball game. Creating this system will allow time for polluters to adjust while making increased profits in the short term. It will raise revenue for government but it will likely act as a stealth tax on consumers and stop governments from facing up to their real responsibilities. If they were going to do this they needed to start doing it ten -fifteen years ago to iron out the not inconsiderable wrinkles.  As it stands we don't have time for wrinkles  and on its own cap and trade wont be enough.  The schemes success in ecological terms are not guaranteed although its success as a tax raising initiative for government is much more assured.

We are too late to stop many of the consequences of climate change from manifestly damaging millions of lives around the world.  Even if successful, cap and trade doesn't address the billions that need to be spent facing the consequences we are already facing due to our failure to act thus far. 

Conclusions

Here's a shock, I support markets and I am against big government.
The attraction to politicians of creating markets is that to a large degree they self regulate. 
Free Markets encourage innovation and punish intransigence and mistakes.
In theory that is.
As we have just seen sometimes society can't afford to pay the cost for mistakes as with the recent banking crises.
Our markets aren't really free markets and pretending that they are is a grave error.

Non of our markets are free or frictionless and leaving market's to their own devices often results in market failure. 
Nearly free markets with firm regulation offer us a working solution but the flaw in this system is the failure of government to regulate effectively.
To regulate you have to understad the market at the level of the best operaters in that market. 
Here's the rub , if profit is the motive the most effective aren't those who operate within the intended ideals of the rules, they are the most successful at navigating the markets actual rules. 
Those who bend the rules or find ways to operate outside the coverage of the rules most effectively get the highest rewards.
This particualrr market is already flawed.
When we are gambling with the planet as the stakes we cant afford to take too many risks.

In my view cap and trade isn't a complete bust at least if some of its more obvious flaws are eliminated.   
It's worth trying but its only one step and we can't afford to bet the farm on its success.

Posted via email from Urban Ascetic (Lite)

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