I read an interesting article in the Washington Post about Cap and Trade.
It gives an example about how a polluter can simply purchase carbon credits from an industry that is in a naturally low polluting field of activity and which would not even engage in that field of activity. Meanwhile, the purchaser of the carbon credits keeps on polluting more. Here is how I paraphrase the example:
There’s that retired guy who owns large parcels of land full of healthy trees.
Some “good Samaritan” approaches him and says:
Samaritan: Hey, did you know that you can get rewarded by the government for growing healthy trees?
Landowner: Really! how so?
Samaritan: Well, you have all those trees that eat up poisonous carbon dioxide and clean the air of greenhouse gas. That’s good for the environment and the government wants to reward you by giving you carbon credits that you can trade for cash.
Landowner: Oh, really?
Samaritan: Yes, and I will even buy those credits from you for cash. So you see, you already have a buyer.
Landowner: Why would you need to buy my credits for?
Samaritan: Well, you see,I have this manufacturing plant that pollutes a lot and the penalty is steep so I’d rather buy credits to offset the penalty and the money that I save, I will use to invest in expensive technology that will clean-up the pollution that my plant makes.
Of course, the “Samaritan” has no intention of cleaning his act and keeps on polluting. Meanwhile, since the Landowner had no intention of cutting his trees anyway, there is no change, carbon wise, at his end. So, the net effect is more carbon release. The “cap” is busted.
Another example has to do with the refrigerant HCFC-22:
It is really easy and cheap to eliminate its polluting manufacturing by-product. The thing is that the carbon credit reward is so good that it pays to become an HCFC-22 manufacturer just to get money for destroying the by-product! How absurd is that. I can already see Internet Marketers hawking yet another get rich quick scheme: “Profit from Cap and trade, Start up your own HCFC plant and profit from automatic government grants.”
So you see, because there are actually a lot of people who stay up all night to dream up ways to game the system, it makes it harder to create a set of regulations that are effective. It’s like setting up a highway speed cap and trade system wherein people who regularly drive below the posted maximum speed would trade their credits with speedsters who would keep on speeding without having to pay speeding tickets. That would not change anything except encouraging speedsters, since the slow drivers were driving slow anyways.
Pushing the analogy further: If most people would decide to slow down just to cash in, there are only so much speedsters out there and their cars can’t go 500 mph. So, there would be a surplus of credits. And you know what happens to prices when there is no demand for what you want to sell…
In the end, there would be only so much drivers slowing down to cash in and the net effect would be more speedsters on highways. So it goes with cap and trade, there would be more greenhouse gas release.
My suggestion: Just fine those who can’t meet the quotas and keep on lowering the quotas year after year. That way, sooner or later, every polluting activity will have to invest in R&D to meet the quotas.
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