Friday, June 27, 2008

Why trade emissions credits anyway?

Wipe the board clean. Fresh eyes.

Consider:

Legislatively mandating emissions reductions to an open and transparent regulatory schedule and NOT operating a market may actually be cheaper and ultimately more effective than an ETS.

Yes, there is the risk of getting the schedule of mandated reductions wrong. Yes, you face the problems and costs of monitoring and compliance.

At the same time, no player in a market is compelled to heed price signals. They can choose not to. In a market situation, we may find that industries dominated by a monopoly or controlled by an oligopoly will be able to extract monopoly rents to pay for carbon credits at any price, while genuinely competitive industries on lower margins will not be able to and will thus unfairly bare the cost of reducing emissions.

It is ordinary consumers who face the consequences whatever the case.

Markets can arguably be very much more "unfair" and contrary to the wider interest than a carefully considered and adjustable schedule of regulated emissions reductions.

Of course, any such regulatory process would instantly become the target for co-opting and corrupting by the same powerful interests who can distort markets to their advantage. But at least the legislated model IS ultimately accountable to all of us in a way the market model is not: via the ballot box.

Note that either system - conscious regulation by law versus unconscious regulation by market - fails when corrupt practices undermine it.

Markets rely on willing participants to function and many who must participate in any ETS don't want to. They are instead trying to use political means to ensure they don't and won't have to.

One could describe this as essentially corrupting the process that would create ANY process for controlling emissions, if using politics to advance one's short term interests regardless of long term costs to everyone else, can be described as "corrupt".

Strictly speaking no. It's just stupid.

Rather than ignore compulsion, it should be discussed, debated, modeled and probably planned for. We can't be herding cats forever while the climate goes haywire. If crises do develop, the ability to rationally respond to them then will be even MORE difficult than it is now while there is little immediate pressure on existing systems and institutions and we have (at least we think we have) some options we can choose from.

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