Common Tragedies

Thoughts on Environmental Economics

Hatin on Cali’s Cap-n-Trade

Posted by Rich Sweeney on March 10, 2008

The title of today’s LATimes opinion piece says it all, “California’s cap and trade won’t work.” To support this claim, the paper runs down the standard list of cap and trade cons in a somewhat incoherent fashion. Big grievances are that cap and trade is uniquely susceptible to special interest meddling, and that power markets (when they’re actually governed by the market) are particularly prone to price manipulation. The article also goes on to talk about leakage, and the problem of not being able to effectively cap imported emissions. In conclusion, the authors imply that they’d be much happier with a carbon tax.

On the issue of political manipulation, the answer is probably less clear cut than conventional wisdom would suggest, as Daniel has argued several times before. On permit price manipulation, I’ve argued that there doesn’t appear to be a whole lot to worry about. As for leakage, I actually think this is a problem. However, it applies equally to a carbon cap and a carbon tax, so I’m not really sure what the LATimes is talking about. The issue is that you can’t identify the emissions of imported power, so you can’t tax or cap the importer of emissions; and one state can’t impose a cap or a tax on another’s generators, so you can’t regulate the source of emissions. Given all this, the newspaper’s case seems pretty weak. I’m looking forward to the Governator’s response.

One Response to “Hatin on Cali’s Cap-n-Trade”

  1. I guess a carbon taxes, like federal income taxes, will naturally just be simple to implement and exempt from any possibility of special interest meddling.

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