In 2005 Europe started off with a cap-and-trade approach to limiting greenhouse gas emissions. Each industry gets a specific number of credits allowing it to emit certain amounts of greenhouse gases. Thoes with extra credits can sell to other industrial concerns. It collapsed, as the price a credits fell through the floor.
Acting on the principle that we should imitate failed policies, we know get this news from England:
I don’t believe that these schemes can succeed. Somebody must always decide how many credits each company gets to begin with. Once companies know how credits are allocated they’ll structure their operations around the goal of getting as many credits as possible. They’ll try to trick those in charge into awarding as many credits as possible. And as the carbon emissions scheme shows, if there are too many credits drifting around, the price collapses.
That’s the flaw, IMHO. Or one of them, anyway. Why should the buyers be limited to other industrial concerns? Why not let enviro groups buy the credits, to take them off the market? That would take care of a great deal of slack in the demand.
The other main flaw is that it perpetuates the status quo ante in terms of who was putting pollution into the atmosphere: whenever a system like this is set up, the existing polluters all get credit for last year’s emissions, plus possibly a modest amount of room for increase.
That makes sense initially, but only because you don’t want to start off with huge disruptions. But in reality, everyone should have an equal share of the total ‘right’ to pollute, and over time, that’s the direction it should evolve: towards a setup where the emission credits were divided equally among each individual in a country, or owned by the government in their stead, with the industrial concerns buying the credits from the citizens/government. Over, say, a 20 year period, you’d phase out the ownership of the credits by the original polluters, and phase in citizen/government ownership in its place.
The result should be a more rational cap-and-trade market.
::sigh:: The EU was (poorly) imitating the US’s successful cap-and-trade system for sulfur dioxide. Sulfur dioxide emissions are down in the US 41% since 1980 - which ahead of schedule. When’s the last time you’ve heard about acid rain? The Union of Concerned Scientists approves of cap-and-trade systems. Note, however, that cap-and-trade only works when the effect of the pollutant to be capped is widespread, not localized. This is why mercury shouldn’t be capped-and-traded, despite the Bushies desire to do so.
The reason that the European Union’s carbon emissions cap-and-trade system collapsed is because the issuance of credits was left to each individual national government. This inevitably led to overissuance; each nation didn’t want to harm their home economy, and said “the other nations will take up the slack.” IOW, there was a trading system, but no enforceable cap.
The way to avoid that is not to base the amount of credits on the historical emissions of a particular company. Indeed, to do so would rather miss the point of capturing the economies sought by a cap-and-trade system.
Instead, you base it on emissions across a particular industry. As a loose example, say in the energy sector, on average power plants release a ton of carbon for every megawatt of energy produced. You set the cap for the next year at .95 tons for every megawatt of energy produced, and issue credits of .95 tons X the amount of megawatts produced by the particular power station. Those plants who can reduce their emissions to .90 tons/megawatt can then sell their excess credits to those which can’t meet the .95 limit. The year after that, the credits are capped at .92 ton/megawatt. Etc., etc.
You wrongly assume that the amount of credits issued to a particular polluter is based upon the previous emissions of that polluter. Instead, the cap is set according to the goal - i.e., the amount of reduction of emissions desired for the year - and then equitably distributed across an industry.
I figured it probably happened in some, quite possibly most, cap-and-trade systems, but it sounds like it doesn’t in the instance that the OP raised.
OK, but what does ‘equitably’ mean? Generally, it has something to do with one’s past emissions levels and existing capacity, right? They aren’t going to one day say, “Oh, there are seventeen companies that emit sulfur dioxide, so each of them gets 1/17 of the credits.”
Anyway, I would still contend that the right to pollute shouldn’t ultimately ‘belong’ to the regulated industry, but to we, the people, and that the emissions credits, in a cap-and-trade, should (by the end of a fairly long transition period) be bought by the players in the industry from either the government or the people.
How does a new company ever start, in a system like that? All of the allowed credits have been handed out. it would seem the easiest way to prevent a new competitor from arising would be to prevent them from getting any allotment of the capped commodity.
It is only the first year of Europe’s CO[sub]2[/sub] trading program. Ideally countries will lessen the number of credits each year and the system will enjoy success similar to the US air pollution program in future years.
You could say the same thing about any limited commodity. Only so much cotton is produced every harvest, for example, and yet new clothing manufactures seem to be able to make enough to get started. Presumable business figure the cost of buying a buch of stuff they’re not going to use isn’t worth the price of squashing competitors.
Agree with the OP that the idea of trying to extend a cap and trade system to fatty food and drink is dubious though. CO[sub]2[/sub] is a waste bi-product of a business producing goods, alcohol and sugar and fats are more or less the goods themselves. Limiting how much beer brewers can produce as a way to reduce alcoholism seems kinda backwords at best.
Cap and Trade can be one part of an overall solution. There does need to be the ability for environmental groups and philanthropists to buy excess credits to keep the value up and encourage the reduction of CO[sub]2[/sub] emissions.
The allotments are traded on the open market. I.e., it is not like the new competitor would have to approach a company and beg them to sell them credits. They would simply buy them in the same way you could go and buy a share of stock in any company that you want to.