One of the most controversial pieces of the new Obama budget is an emissions trading program which hopes to generate revenue for the government in addition to limiting the amount of greenhouse gases that America releases into the atmosphere every year.
While the details of the program have not yet been fully fleshed out, the proposal itself has created a torrent of criticism, from likely places with an unlikely argument. Regardless of the political controversy, an argument worth having is whether or not this particular system is the most efficient way to curtail greenhouse gas emission.
America's historical experience with emissions trading dates back to the 1990 Clean Air Act, which sought to limit acid rain by curtailing sulfure dioxide emissions. If measured on results, this particular program was incredibly successful. From 1990 to 2002, sulfur dioxide emissions dropped from 16M tons to 10M tons achieving 80% of the goal eight years before the target date. The EPA estimates that the program costs roughly $1 to $2 billion per year, which is relatively inexpensive on a per capita basis. This annual cost is actually only one-fourth of what was predicted when the bill was enacted.
There are several criticisms of the cap and trade borne out of the experience with the sulfur dioxide trading regime, which are highlighted in this particular post by, ironically, Larry Summers.
He lists the following problems:
1. Difficicult to implement.
2. Pollution credits in Europe are very cheap, indicating an ineffective permitting regime.
3. Incentives are created for companies to engage in economic rent-collecting behaviors.
4. Pollution credits are allocated rather than auctioned, creating marketplace inefficiency, and robbing the government of additional revenue.
Picking up on a theme? Most of his difficulties come from his view that any centralized scheme is doomed to failure because of either or both of implementation difficulty or sheer incompetency.
Another perspective comes from the Environmental Defense Fund:
1. Mandatory emissions cap, with a very positive market clearing price for credits.
2. Fixed allowances for each polluting entity.
3. Creation of robust banking and trading of credits.
4. Clear performance criteria.
5. Flexibility for polluters.
Again, the EDF lists many of the design factors in a trading program that need to be optimized, but does not really have any good ideas for how to do it. As such, it would seem that at a cursory level the devil is certainly in the details.
Therefore, it would seem we can only know how effective and efficient the program will be once the EPA actually creates the trading framework. By then, the debate will be over and oversight over the most crucial phase of implementation will be, unfortunately, lax.
While the details of the program have not yet been fully fleshed out, the proposal itself has created a torrent of criticism, from likely places with an unlikely argument. Regardless of the political controversy, an argument worth having is whether or not this particular system is the most efficient way to curtail greenhouse gas emission.
America's historical experience with emissions trading dates back to the 1990 Clean Air Act, which sought to limit acid rain by curtailing sulfure dioxide emissions. If measured on results, this particular program was incredibly successful. From 1990 to 2002, sulfur dioxide emissions dropped from 16M tons to 10M tons achieving 80% of the goal eight years before the target date. The EPA estimates that the program costs roughly $1 to $2 billion per year, which is relatively inexpensive on a per capita basis. This annual cost is actually only one-fourth of what was predicted when the bill was enacted.
There are several criticisms of the cap and trade borne out of the experience with the sulfur dioxide trading regime, which are highlighted in this particular post by, ironically, Larry Summers.
He lists the following problems:
1. Difficicult to implement.
2. Pollution credits in Europe are very cheap, indicating an ineffective permitting regime.
3. Incentives are created for companies to engage in economic rent-collecting behaviors.
4. Pollution credits are allocated rather than auctioned, creating marketplace inefficiency, and robbing the government of additional revenue.
Picking up on a theme? Most of his difficulties come from his view that any centralized scheme is doomed to failure because of either or both of implementation difficulty or sheer incompetency.
Another perspective comes from the Environmental Defense Fund:
1. Mandatory emissions cap, with a very positive market clearing price for credits.
2. Fixed allowances for each polluting entity.
3. Creation of robust banking and trading of credits.
4. Clear performance criteria.
5. Flexibility for polluters.
Again, the EDF lists many of the design factors in a trading program that need to be optimized, but does not really have any good ideas for how to do it. As such, it would seem that at a cursory level the devil is certainly in the details.
Therefore, it would seem we can only know how effective and efficient the program will be once the EPA actually creates the trading framework. By then, the debate will be over and oversight over the most crucial phase of implementation will be, unfortunately, lax.
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