August 19, 2009

Emissions Trading: A Frankenstein's Monster?

Aw, would you listen to the gibberish they've got you saying, it's sad and alarming! You were designed to alert schoolchildren about snow days and such.

-- Professor Frink, The Simpsons
So some of the economists who invented the concept of pollution emissions trading, including Thomas Crocker and the late John Dales, were profiled in the WSJ recently as being against the use of emissions trading to fight climate change. Such an event has an obvious man-bites-dog element to it, but it's worth noting that the specific objections that these éminences grises have to using cap-and-trade for climate change are rather pedestrian: According to the article, they argue that 1) cap-and-trade was designed to handle local pollutants like sulfur dioxide, not global pollutants like carbon dioxide and methane; and 2) uncertainty about the costs of climate change make it hard to determine a cap on emissions, and changing the size of the cap to comport with new data would be difficult. Instead, Crocker and David Montgomery, another progenitor of emissions trading, recommend using a carbon tax.

On both of these, I'm with John Whitehead: The problems with actually existing cap-and-trade programs -- which is what Crocker, et al are describing -- would likely prevail with actually existing carbon tax programs. In fact, I would go further and say that the thing we need most is not this or that mechanism for reducing carbon emissions, but institutions capable to recognizing the threat posed by climate change and acting decisively on it. The rules of the US Senate arguably matter as much as the particular structure of a US cap-and-trade system that it would consider. Internationally, negotiations on climate change reflect the state of international institutions as a whole: Often efforts to act on global issues devolve into acrimony between the developed and the developing countries -- or between the US and everyone else -- and to the extent consensus is reached, there is no internationally recognized authority to enforce agreements.

This is why the negotiations in Congress over health care reform have been so depressing: Despite a clear need for change in how we finance health care, and a majority in both chambers in general support of a plan to do that, legislation is still being held hostage by the whims of Max Baucus and the now-routine use of the filibuster. And yet, the system does at times work swiftly -- if you're an investment bank or an agribusiness giant. If you can't get health insurance, or you live in a poor country at risk of climate change-induced drought or flooding, not so much.

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