Thursday, May 22, 2008

Is cap-and-trade a stitch-in-time?


The cost of meeting an emission target with a cap-and-trade program could be reduced, potentially quite substantially, by providing firms flexibility in the timing of their efforts to reduce emissions.

On the basis of an analysis of the results of several economic models, CBO estimates that if the legislation was enacted, the auction price of emission allowances for those gases would rise from about $23 per metric ton of carbon-dioxide-equivalent (mt CO2e) emissions in 2009 to about $44 per mt CO2e in 2018.

Enacting S. 2191 as it was ordered reported would increase revenues by about $1.19 trillion over the 2009–2018 period, CBO estimates. Direct spending from distributing those proceeds would total about $1.21 trillion over the period. The net effect of the original legislation (as ordered reported) would be to increase the deficit (excluding any effects on future discretionary spending) by an estimated $15 billion over the next 10 years.

-CBO Economist in Chief, Testimony

I sadly have to admit that I haven't followed the debate on cap-and-trade closely enough to understand it as a way to ration energy use or to improve plant efficiency.

The first (and big) problem is plant efficiency, in many cases. I fail to see how a cap "incents" an upgrade from dirty technology to the best-available technology. Statewide "clean stacks" programs have had some effectiveness, so cap-and-trade looks ... too sophisticated by half.

As a way to ration energy production (the axiom of emissions reduction), it does seem to provide some incentives to always operate at maximum efficiency in order to achieve maximum profitability. It does seem to assume that there is a set of companies who will choose not to do so (who else will be on the "losing" side of "trades"?). This could accentuate regional disparities, quickly creating a binary distribution of "haves" and "have nots". Meanwhile, some states have had regulatory success in rewarding energy companies not on output, but on efficiency measures (and some indication that there could still be much left to be gained, even now).

I'll keep reading, but cap-and-trade looks like a fancy way to appear to be doing something...

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