Sunday, November 11, 2012
Happy California Cap-And-Trade Eve
Nice radio program on California's cap-and-trade allocation auction that starts taking bids tomorrow, and on Monday we'll find out the price per ton, with a minimum price set by regulation at $10/ton. Second biggest cap-and-trade market in the world after Europe. Hopefully we've learned from other's mistakes (and I think we have).
One critique deserving a response is whether including a minimum and maximum price on allocations somehow proves a failure of the cap system. The idea is if a cap's appeal over a carbon tax is that it determines the total amount of emissions, then the floor and ceiling prove the lack of commitment to determine the right amount of emissions.
1. Doesn't matter anyway unless the price hits the floor or ceiling.
2. It's a little simplistic to say a tax focuses on specific price for carbon while a cap focuses on specific quantity of carbon emissions. The floor and ceiling for a cap just lets society choose a tradeoff between price and quantity. You could do something similar with a tax by letting the tax price change if total emissions fall through a floor or above a ceiling.
3. If greenhouse gases were as easy to eliminate as ozone-destroying chemicals then we'd have a similar schedule for phaseout. It's not that easy, so we're doing things less quickly under either a carbon tax in Australia, or cap in Europe and in parts of the US. Putting a floor is an indication that we overestimated the difficulty in achieving a reduction and therefore will require a larger reduction. It's actually good news, that we can achieve reductions more quickly than anticipated.