Carbon emissions reduction without cap-and-trade

We’ve said it before: most people just don’t like the idea of carbon cap-and-trade schemes. Whether they object because it’s like a tax, or because it’s not like a tax, or because it only benefits those crooked financial types, or because it’s too bureaucratic and expensive, or because they hate offsets, or free allowance giveaways to polluters… there’s an objection for almost everyone.

A pretty powerful constituency however does like cap-and-trade: (some) economists, financial industry types,  policy wonks, and some big businesses.

This blog has written a lot about cap-and-trade versus a carbon tax, but some are suggesting that a climate bill should just go ahead with neither a tax nor a trading scheme.

Senator Lisa Murkowski, a moderate Republican who has indicated support for a climate bill (but who is also, controversially, considering proposing an amendment curtailing the EPA’s CO2 endangerment finding) last month complained about the ‘blind loyalty’ to cap-and-trade, and some Democrats also voiced criticism of carbon trading. This week the rancour is growing, and environmentalist opponents of cap-and-trade such as the Breakthrough Institute and Jim Hansen are restating their views.

One of the most persuasive arguments in favour of cap-and-trade is that it lets the market find the cheapest and most effective way to reduce emissions. If the decision is left up to governments, the theory goes, they are unlikely to be as effective at cutting emissions as the open market operating with a carbon price.

WSJ’s Environmental Capital blog points out last year’s EIA research showing that the benefits of a cap-and-trade scheme for renewables do exist, but they’re pretty thin. As for boosting clean coal and nuclear, it depends on the costs. And plenty of countries are powering along with clean energy development with no explicit price on carbon (step forward, Brazil and China).

All good points, but it leaves out energy efficiency – one of the most cost-effective ways of reducing emissions – and assumes that governments will back the best renewables, rather than the most politically expedient.

It might seem slightly ironic that the US may only be able to support a more interventionist approach to reducing emissions. Then again, after looking at the events of the past couple of years, maybe not.

Update: Just in case anyone else got the wrong end of the stick, the point here is that judging cap-and-trade and other schemes that price carbon, solely on how good they are for renewables, is a mistake. The point of pricing carbon is to let the market find the best way of reducing emissions, including efficiency measures, rather having them specified by governments – who tend to be less good at determining the best ways of achieving the goal.

As an aside, we found this E&E report of a survey on cap-and-trade versus carbon taxes very illuminating, given the conventional wisdom that a carbon tax would be politically unpalatable:

But, the poll showed, when both concepts are explained, voters of all political affiliations and backgrounds favor the tax proposal by a significant margin. Sixty-six percent of Democrats prefer the carbon tax, as do 58 percent of independents and 46 percent of Republicans.

Overall, 57 percent of those surveyed say they would favor a carbon tax, while 37 percent are opposed.

Related links:

Murkowski and her lobbyist allies (Washington Post)
Uncool carbon markets (FT Energy Source, 22/12/09)
Cap and trade: Perennially unpopular (FT Energy Source, 03/12/09)

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