cap-and-trade


You don’t say.

Trade in permits to pollute is “largely pointless” when compared with the scale of growth in greenhouse gases in China and must be scaled up, one of the carbon market’s most senior traders said on Monday.

Countries and companies in the developed world can buy emissions rights by investing in carbon cuts in developing nations, under a Kyoto scheme called the clean development mechanism (CDM) meant to cut the cost of fighting climate change.

But those cuts were tiny compared with rises in the world’s top emitter, said Garth Edward, head of emissions trading at Citigroup, and formerly head of trading at Shell.

“The CDM in China is largely pointless as far as reducing its emissions trajectory,” he said.

Of course, all of this amounts to doodley squat without China.

Coincidentally…China revealed its long-awaited plan for curbing its voracious consumption of fossil fuels, which has made it the biggest emitter of greenhouse gases on the planet. This was treated as a welcome breakthrough, evidence of China’s growing responsibility, proof that Beijing is willing to do its bit to save the planet.

So what’s the big breakthrough? China says it will adopt a program to reduce the amount of carbon dioxide emitted per unit of economic output by 40 to 45 percent by 2020, compared with 2005 levels.

Ta-da!

The thing is, what China is offering is a reduction in carbon intensity, not in actual emissions. When Canada’s Conservatives adopted an plan based on intensity — as a means to avoid crippling Alberta’s economy and side-swiping Canada’s in the process — it was ridiculed and denounced by the usual activists, dismissed as a climate change denier.

 Imagine that! Fossil-Award-winning Canada actually has a good idea.

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Is this about saving the planet or making money?  

The carbon market could become double the size of the vast oil market, according to the new breed of City players who trade greenhouse gas emissions through the EU’s emissions trading scheme.

The ETS market may see $3tn (£1.8tn) worth of transactions a year in the next decade or two, according to Andrew Ager, head of emissions trading at Bache Commodities in London, with it even being used as a hedge against falling equities or rising inflation. “It is still a relatively new industry with annual trades of around €300bn every year. But this could grow to around $3tn compared to the $1.5tn market there is for oil,” says Ager, who used to be a foreign currencies trader.

Carbon is one of the most plentiful elements in our galaxy. Yet by some sort of strange alchemy, the carbon released by burning fossil fuels such as oil is expected to be worth more than the oil itself.

 Sometimes all the grand talk is just grand talk.

President Obama claims that his “new energy economy” will jump start growth and jobs. The EPA endangerment rule repudiates that claim once and for all. If the green future is going to be so bright, why does the White House want to exempt so many businesses from its glories?

They invented it, and yet they don’t think it is the best way to approach global warming.

Mr. Crocker, who went on to become a professor at the University of Wyoming, is one of two economists who dreamed up cap-and-trade in the 1960s. The other, John Dales, who died in 2007, was also a skeptic of using the idea to tame global warning.

“It isn’t a cure-all for everything,” Mr. Dales said in an interview in 2001. “There are lots of situations that don’t apply.”

Mr. Crocker sees two modern-day problems in using a cap-and-trade system to address the global greenhouse-gas issue. The first is that carbon emissions are a global problem with myriad sources. Cap-and-trade, he says, is better suited for discrete, local pollution problems. “It is not clear to me how you would enforce a permit system internationally,” he says. “There are no institutions right now that have that power.”

[…]

The other problem, Mr. Crocker says, is that quantifying the economic damage of climate change — from floods to failing crops — is fraught with uncertainty. One estimate puts it at anywhere between 5% and 20% of global gross domestic product. Without knowing how costly climate change is, nobody knows how tight a grip to put on emissions.

In this case, he says Washington needs to come up with an approach that will be flexible and easy to adjust over a long stretch of time as more becomes known about damages from greenhouse-gas emissions. Mr. Crocker says cap-and-trade is better suited for problems where the damages are clear — like acid rain in the 1990s — and a hard limit is needed quickly.

…it is interesting to see just how tepid the academic support for Waxman-Markey is becoming. It’s not simply “shills for Big Oil and Big Coal” who oppose it, as many activists would have us believe.

On the contrary, even hardcore alarmists such as James Hansen have come out strongly opposed to Waxman-Markey.

What a mess!

Robert Bradley at MasterResource suggests that internal division among the left on U.S. climate change legislation may be preparing the ground for a more realistic approach to climate change:

A realistic look at climate science, economics, and politics points towards a coming tipping point in favor of climate-change adaptation rather climate-change mitigation. This explains the current panic among climate regulationists about not passing cap-and-trade legislation in 2009–regulation that is supposed to magically lead to hard, short-term global targets in Copenhagen later this year.

Political failure this year portends failure next year–and beyond, which is to say that there are more losers than winners in cap-and-trade because carbon-based fuels are winners and politically correct energies are losers–as judged by consumer/voters.

The Wall Street Journal reports that the number of climate change skeptics is growing, even in the land of Gore and Obama.

The collapse of the “consensus” has been driven by reality. The inconvenient truth is that the earth’s temperatures have flat-lined since 2001, despite growing concentrations of C02. Peer-reviewed research has debunked doomsday scenarios about the polar ice caps, hurricanes, malaria, extinctions, rising oceans. A global financial crisis has politicians taking a harder look at the science that would require them to hamstring their economies to rein in carbon.

Yet that inconvenient truth has only heightened the sense of urgency, as well as the rhetoric.

Among the many reasons President Barack Obama and the Democratic majority are so intent on quickly jamming a cap-and-trade system through Congress is because the global warming tide is again shifting. It turns out Al Gore and the United Nations (with an assist from the media), did a little too vociferous a job smearing anyone who disagreed with them as “deniers.” The backlash has brought the scientific debate roaring back to life in Australia, Europe, Japan and even, if less reported, the U.S.

The jury is now out on who will be seen as the the real traitors in ten years time.

David Friedman discusses the theoretical and practical differences between cap-and-trade and carbon taxes in dealing with greenhouse gas emissions.

Which brings us to current proposals for cap and trade of carbon dioxide as a solution to problems of global warming. In a system run by philosopher kings, the only important difference between that and a carbon tax is the information required to set the level of emissions or amount of tax. In the real world, cap and trade has the (political) advantage of getting large parts of the regulated industry in favor of the regulation and thus eliminating a lot of potential opposition. The cost, possibly more than a hundred percent of it, is shifted to the customers, which is to say the general public—a dispersed and politically impotent interest group. And if the government retains considerable flexibility in just how emission permits get allocated, it can use some of them to buy political support from other groups or to reward them for past support.

Cap and trade has a political disadvantage as well, of course; a carbon tax would bring in lots of money. But that money would show up in the budget, get labelled taxation, and so make it harder for the administration to deny that it is raising taxes to pay for its programs. And much of it might end up spent to get the carbon tax passed by buying off organized interest groups that were potential opponents.

Think of the cap and trade version as eliminating the middle man.

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