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Straight Lines and Zig Zags

| Saturday June 21st, 2008 | 1 Comment

If you’re trying to find the fastest route from Point A to Point B, would you choose a straight line or a zig zag? In the case of carbon reductions and climate change, it seems we’re choosing the latter.
Carbon markets, a k a cap-and-trade, are a zig zag approach to reducing carbon emissions. They’re complex, dynamic and susceptible to corruption and gaming. The European Union, with its 3-year old carbon market, has seen carbon emissions rise, not fall, during this period, 0.4 percent in 2006 over the previous year and 0.7 percent in 2007.
The reason? As human systems, carbon markets are subject to the same pitfalls and vagaries as any other human institution, perhaps even more so since the stakes are so high. In Europe, regulators have been heavily influenced by the 12,000 companies in the market vying for easy pollution permits. Too many permits were initially issued, making the price of carbon low and providing little incentive for polluters to reduce their emissions. Britain’s cement industry saw carbon emissions increase by 50 percent in the last 3 years.
The simplest, best approach to reducing carbon emission is a carbon tax, whether in Europe or here in the U.S., which is inching toward a cap-and-trade approach. A carbon tax is the straight line. Put a price tag on carbon, apply it across the board and let the price signals do their thing.
But to get there, we need leadership, from politicians, CEOs and citizens alike. That’s the tougher row to hoe, the real zig zag.


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  • Seth Jaffe

    Bill: One issue about a tax, given uncertainty about how to comply, is that we really don’t know at what level to set the tax. We may get it totally wrong.