Thursday, 24 February 2011

Cap & Trade - inadequate & inneffective

In the video below, two officials from the US EPA explain why the perversion of legal loopholes, the hypocritical application of offsets and special interests' manipulation of a cap & trade system result in windfall profits for utilities, higher energy prices for consumers and - worst - increases to carbon emissions. This idea, in the context of greenhouse gas emission reduction, is a proven failure.

A fee & dividend approach is much more fair and actually is the best policy option to solve the problem. [Much like the deployment of currently available nuclear generation technology, is among the best no/low CO2 emitting technical options to phase out dirty coal.]

in reference to: Gillard unveils carbon price details - ABC News (Australian Broadcasting Corporation) (view on Google Sidewiki)


  1. A carbon tax will overshoot or undershoot the target CO2 output while in theory a tradeable cap gets it every time. If the economy is doing well the spot price increases and conversely backs off when the target has been reached. I agree that many offsets are most likely illusory or fraudulent. However that's not unique to C&T as offsets could easily be allowed as deductions from carbon tax.

    There's no need for this awkward term 'fee and dividend' we should just call it revenue neutral. Again both trade and tax approaches can be revenue neutral.

  2. I don't think so. A cap and trade system will guarantee a carbon floor - such that emission will never dip below. The mechanism being the crash of carbon credit prices as (if) emissions approach the target; thereby giving polluters a cash incentives to increase generation via fossil fuels. However, with inefficiencies in the system and - worst of all - carbon offsets will ensure real world emissions (all that really matter) do no even approach this 'floor'.

    Finally, there is no incentive for people to change their personal habits with cap & trade. If one person trades in his or her gas guzzling clunker for a bicycle; it just means their neighbor can continue to drive their Hummer guilt free. In a fee and dividend scheme, the cycler gets discretionary cash in his or her pocket and the gas guzzling neighbor pays a hefty fuel price for his behind-the-wheel bravado. In the latter case, perhaps he will think twice about his choice of auto.

    Cap and trade is an industry stroking, special interest loving recipe for disaster. Nothing more.

  3. Not sure about that last example. If both people with gas guzzling clunkers were covered by emissions trading scheme then they might either be grandfathered caps representing half a Hummer's-worth of emissions, so thatthe person swapping to a bike could sell their emissions credits to the person still driving the clunker. Alternatively if there was no grandfathering of credits the person still driving the clunker would have to buy credits to cover their emissions and the cyclist wouldn't.

  4. Are you suggesting emissions trading down to the level of an individual? Sounds pretty complicated, potentially wasteful and beyond the way it's implemented in Europe at the moment. Take the example further, say the lion's share of an entire community decides to go green and place their grandfathered clunker's credits on the market. The price - at least locally - would tank. People could soak up credits for nothing and thereby ensure a minimum emissions 'floor'. Their motivation within the market would be for practices that are unsustainable... business as usual.

    Same scenario for carbon fee and dividend. Should everyone clean up - significantly less fees will be collected, yielding significantly less dividend. You will just arrive at a new, sustainable status quo, job done, no?