IS CAP-AND-TRADE A WAY TO DO WELL AND DO GOOD?

Proponents of an EU-style cap-and-trade system for the U.S., and ultimately for the whole world, believe two things: (1) The “perfect” carbon tax is not politically achievable and must therefore not be allowed to be the enemy of the “good” cap-and-trade system; and (2) a cap-and-trade system can reduce the growth of greenhouse gas (GhG) emissions and generate funding for building transitional efficiencies and New Energy infrastructure.

UN officials and governments met in Bangkok March 31 through April 4 to hold further discussions on a post-Kyoto accords (expiring at the end of 2012) agreement. They see cap-and-trade as an essential element. Yvo de Boer, head, United Nations Framework Convention on Climate Change (UNFCCC): "A functioning carbon market will be critical to a successful agreement…"

Why do leaders like de Boer want cap-and-trade despite the limited effectiveness of the European Union’s Emissions Trading Scheme (EU ETS) to date? They know the EU ETS is still immature and has correctable imperfections, like the failure to include some sectors while putting too much burden on others.

A cap-and-trade system creates an emissions trading market. It is no better and no worse than any other commodities market. It is not as direct a path to revenues or as direct a control mechaniam as a tax on emissions. But it does not require political leaders to convince electorates to approve a new tax. Instead, it provides businesses with a market system in which the best emissions-reductions strategies can win.

Most importantly, while some market profits are undoubtedly taken by savvy businesses, funds are generated for New Energy because credits to emit are purchased by funding New Energy installations. A utility can buy the right to burn coal for electricity now by building a wind or solar installation. Eventually, it would surely stop paying for electricity twice and simply buy the newly available wind or solar power.

Under the best of circumstances, a trading system has the same impact as a tax, driving personal interests into the service of larger interests. Bill Hare, Greenpeace: "The tighter the cap, the higher you will see carbon prices and the more incentive to switch to investments to lower emitting technology and practices…"

Two requirements for cap-and-trade: (1) Get all sectors into the system and tighten down the caps as fast and hard as possible. (2) Provide for the have-nots with something like the Cap and Share proposal from the economists, scientists and activists of cap and share in which everyone, everywhere, gets some share of credits to be traded by the system.

Finally: In his new presentation on global climate change, Al Gore stressed the importance of putting a price on carbon. He mentioned a tax but was not specific.

Cap and Share (click to enlarge)

Carbon trade using profit motive for public good
Michael Casey, April 4, 2008 (AP via Business Report)

WHO
Henry Derwent, head, International Emissions Trading Association (IETA); Yvo de Boer, head, United Nations Framework Convention on Climate Change (UNFCCC); Benjamin Sovacool and Toby Carroll, research fellows, Lee Kuan Yew School of Public Policy; Bill Hare, Greenpeace

The debate of our time. From The Carbon Tax Center. (click to enlarge)

WHAT
Cap-and-trade: Is it the solution to global climate change? Is it a boondoggle? Is there a better way?

WHEN
- late 1990s: Derwent had difficulty convincing other governments to join the UK’s proposed emissions trading system
- 2002: British emissions trading market
- 2005: EU emissions trading market
- 2008: New Zealand’s emissions trading market
- 2009: U.S. Northeast Regional Greenhouse Gas Initiative trading system to begin
- 2009: U.S. national trading systems to be debated as part of “Global Warming” legislation
- 2010: Australia’s proposed system to begin

Emissions trading has become a profession in itself and... (click to enlarge)

WHERE
- Derwent was interviewed during the Bangkok interim UN conclave for further development of the system which will replace the Kyoto accords after 2012.

WHY
- A cap-and-trade system does not stop emissions, it caps them. And it allows emitters to purchase credits to generate emissions beyond their caps. But they must purchase them from a source that has cut its emissions by the same amount or from a builder of emissions-free energy.
- There is no doubt a more effective way to stop emissions would be to tax them more and more heavily until it is just too expensive to emit. That, however, is a very heavy-handed intervention.

...worldwide. (click to enlarge)

QUOTES
- Henry Derwent, head, IETA: "You are using profit motive to achieve a public good, and this is just brilliant…"
- Toby Carroll, research fellow, Lee Kuan Yew School of Public Policy: "Until people consciously realise the situation that the world is in and change their own patterns of behaviour, you can't change anything…One of the reason carbon trading is so acceptable to the powers-that-be is that it doesn't substantially impact on existing operations."
- Bill Hare, Greenpeace: "The point of the market is to find the most efficient way to reduce emissions…