Fool’s Gold of Carbon Trading
December 1st, 2008Posted by: Roger Pielke, Jr.
The Sunday Times has an article by Jonathan Leake that provides some hope that some people are beginning to see that cap-and-trade is, as the headline suggests, fools gold.
Leake hits the nail on the head when he observes:
It sounds good news for everyone: governments, taxpayers, City boys and the environment. The reality is a great deal less rosy – indeed some of those closest to the carbon markets say openly that the system is doomed to failure.
Leake quotes a carbon trading consultant on the fatal flaw of cap-and-trade, reinforcing an argument that we have made here on many occasions (e.g., here in PDF):
“The fatal flaw is . . . the politicians, because they set the cap which determines the supply of CO2 credits . . . The problem is that making those caps tough enough to achieve real cuts in CO2 emissions would have all kinds of political consequences. The chances of any politician taking such a decision are negligible.”
December 1st, 2008 at 9:54 am
It’s fun to blame the politicians, but the reality is that politicians who set a cap tight enough to actually do something would quickly be recalled when the carbon price at which that occurred became evident. The fatal flaw is ultimately the public’s lack of commitment to doing anything that costs much.
Cap & trade exacerbates the effect of political survival instincts, because inelastic energy demand translates emissions certainty into high price uncertainty. Thus adventurous cap-setting is unlikely. A safety valve would mitigate that problem, and permit greater reductions on average, but ironically greens tend to oppose that.
A carbon tax is a more stable and transparent instrument, but to set the tax you have to admit up front what you’re willing to pay – which on the part of the public is evidently not much. However, a little honesty might actually help us confront the problem.
December 3rd, 2008 at 9:32 am
Tomfid, wrote — “However, a little honesty might actually help us confront the problem.”
A little honesty about the “science” behind the problem would actually be far more helpful.