Comments on: Point Carbon gets it wrong http://commontragedies.wordpress.com/2008/04/07/point-carbon-gets-it-wrong/ Thoughts on Environmental Economics Wed, 07 Oct 2009 15:26:58 +0000 http://wordpress.com/ hourly 1 By: drwoood http://commontragedies.wordpress.com/2008/04/07/point-carbon-gets-it-wrong/#comment-2385 drwoood Mon, 28 Apr 2008 06:35:38 +0000 http://commontragedies.wordpress.com/?p=379#comment-2385 While the opportunity cost is the same, there is the problem that some methods of free allocation of permits can lead to 'perverse dynamic incentives', which could reduce incentives to invest in low emission technologies. The problem is that if the amount of permits allocated in the future depends on emissions during the present, then there is a perverse incentive to not reduce emissions during the present. This could be a problem during the lead-up to emissions trading. One way of addressing this is by having extras incentives for early abatement, but this introduces more complexities and transaction costs. IMO it is much better to not grandfather permits in the first place. While the opportunity cost is the same, there is the problem that some methods of free allocation of permits can lead to ‘perverse dynamic incentives’, which could reduce incentives to invest in low emission technologies. The problem is that if the amount of permits allocated in the future depends on emissions during the present, then there is a perverse incentive to not reduce emissions during the present. This could be a problem during the lead-up to emissions trading. One way of addressing this is by having extras incentives for early abatement, but this introduces more complexities and transaction costs. IMO it is much better to not grandfather permits in the first place.

]]> By: Rich Sweeney http://commontragedies.wordpress.com/2008/04/07/point-carbon-gets-it-wrong/#comment-2319 Rich Sweeney Thu, 10 Apr 2008 14:56:49 +0000 http://commontragedies.wordpress.com/?p=379#comment-2319 Aleksi, This is a very very good observation. Lemme think about it some more and get back to you. Aleksi,

This is a very very good observation. Lemme think about it some more and get back to you.

]]> By: Aleksi Knuutila http://commontragedies.wordpress.com/2008/04/07/point-carbon-gets-it-wrong/#comment-2318 Aleksi Knuutila Thu, 10 Apr 2008 13:33:22 +0000 http://commontragedies.wordpress.com/?p=379#comment-2318 I think the exception is investment into R&D that would "leak" to other companies so that they would also benefit from the discoveries. In this case a company initially owning carbon credits would have a relatively smaller incentive to invest into mitigation technology, since the development of the technology would decrease the value of the credits that it owns. I think the exception is investment into R&D that would “leak” to other companies so that they would also benefit from the discoveries. In this case a company initially owning carbon credits would have a relatively smaller incentive to invest into mitigation technology, since the development of the technology would decrease the value of the credits that it owns.

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