Pioneering Cap-and-Trade Program to Fade into the Sunset

[Abdul Alhazred]

Pioneering Cap-and-Trade Program to Fade into the Sunset (Reuters)

The Chicago Climate Exchange (CCX) will discontinue its voluntary greenhouse gas cap-and-trade program next month, according to Intercontinental Exchange Inc., its parent company. In its place, CCX will launch a new registry program for 2011 and 2012 carbon offsets.

The development marks a stark contrast from two years ago when many considered climate change legislation in the U.S. to be inevitable.

"Fundamentally with any program that relies on voluntary compliance for something not yet mandated into law, it makes it more difficult ultimately to have as vibrant a market as you'd want," said Bruce Braine, vice president of strategic policy at utility American Electric Power (AEP). "That was the ultimate weakness. For a period of time, up until the last year, a lot of it was thriving on anticipation there would be legislation."

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Emphasis added.

 

[theprestige]

Two things strike me about the the part you emphasized:

One is that black markets seem to thrive vibrantly in the absence of any legislation other than prohibition of the market itself. I can assure you that the California marijuana market was thriving for decades before any legislation was even remotely anticipated. See also: Colombian drug cartels.

The other is that of course certain people will get very excited about buying and selling, when they expect the government to force their counterparties to sell and buy under circumstances that would not otherwise motivate them to do so.

If you have surplus bacon that you plan to feast on over the weekend, and no amount of money could persuade you to part with it, but then the government comes along and tells you that you have to sell it to me for two cents a pound, I guarantee you there will be a thriving market for me buying your bacon. If the government also tells me that I have to maintain at least a certain minimum stockpile of bacon, the market-thriving doubles!

 

[Abdul Alhazred]

I do not think cap and trade is over for good by any means.

They will try again later.

 

[daenku32]

Cap-and-Trade is the free market solution to reducing GHGs. The alternative is a carbon tax.

Pick which ever one you prefer. Personally, I don't care. Just put one into place.

 

[Abdul Alhazred]

Cap and trade is a "market flavored" scam, not a "market solution" to anything.

It's profiteering on anticipated government regulations. A way for politicians to enrich the already rich and well connected.

A carbon tax is an inefficient way of achieving the same ends as corporate income taxes, so it's not inherently corrupt like cap and trade.

 

[Almo]

Cap and trade is a "market flavored" scam, not a "market solution" to anything.

It's profiteering on anticipated government regulations. A way for politicians to enrich the already rich and well connected.

A carbon tax is an inefficient way of achieving the same ends as corporate income taxes, so it's not inherently corrupt like cap and trade.

I happen to know one of the economists responsible for the cap and trade idea. I personally think it's a good one.

You pick a cap for emissions. Rate polluters according to what they emit. Then they can trade among themselves to work out which one can clean up the most efficiently.

Company A can reduce emissions by X million tons for Y cash.
Company B can reduce emissions by (X / 10) million tons for 2Y cash.

If company B can buy the right to pollute (X / 5) million tons from Company A because Company A can clean it up more cheaply, they will do it, and you net more cleanup across the system for a lower cost.

That's oversimplified, but it works in certain situations. For example, the economist I know who worked on this says it's not the right solution for the world. This is because it depends on a body with the authority to enforce the limits. Such a thing does not exist in the world. So this strategy is really only useful inside nations or states.