Cap-and-trade regimes have advantages, notably the ability to set a limit on emissions and to integrate with other countries. But they are complex and vulnerable to lobbying and special pleading, and they do not guarantee success.It's quite simple, actually. The advantage of cap and trade is that it disguises the reality that the government controlling the regime is imposing an especially onerous and regressive tax. And the market for these credits will necessarily be as arbitrary as the market for credit default swaps was. And I think we all remember how that movie ended.
The experience of the European Union is Exhibit A. Emissions targets were set too high. Too many pollution allowances were given away to industry. The value of a carbon credit plummeted. Companies made windfall profits by charging customers more for energy while selling allowances they didn't need. And the Europeans have not had much success reducing greenhouse gas emissions. Disputes on the next round of reductions led to the creation of a two-tiered system to appease Eastern European countries fearful of the cost to their industries.
And there's this little problem, too:
Washington, D.C.-During a hearing today in the Senate Environment and Public Works Committee, EPA Administrator Jackson confirmed an EPA analysis showing that unilateral U.S. action to reduce greenhouse gas emissions would have no effect on climate. Moreover, when presented with an EPA chart depicting that outcome, Energy Secretary Steven Chu said he disagreed with EPA's analysis.What would be needed? The agreement of China and India. Likely? Well, not so much.
"I believe the central parts of the [EPA] chart are that U.S. action alone will not impact world CO2 levels," Administrator Jackson said.
Maybe there's a good reason to set up an artificial market for intangible credits that are well-nigh impossible to price, with the goal of doing something that won't work. Guess I'm not seeing it. Help me out, people -- explain the benefit, if you can.