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    Cap And Trade

    By Claus Schafhalter | February 10, 2010

    Cap and Trade is one of these ideas that sound good. But when executed poorly it does not benefit our planet, instead it benefits the same kind of gamblers that brought us the near financial collapse and the following big recession.

    What is the idea behind Cap and Trade? – Cap sets a limit for carbon emissions, an entity emitting carbon needs to have licenses sufficient to cover their emissions. Trade means that licenses to emit can be bought and sold on exchanges. Emissions become a cost for an emitting entity, and in an attempt to reduce costs corporations would reduce emissions. Sounds good, at least in theory.

    However, there are many flaws with this system. The most fundamental one is that the cost of emitting carbon is not based on a real cost approach, but is set mainly by two parameters:

    1) The “cap” set by a central authority at the introduction of “cap and trade” and its reduction over time (the target curve).

    2) The power of regulatory agencies of issuing too many or too little emission credits, diluting the effectiveness of any regulation, and providing the opportunity to effectively remove the cap.

    In my opinion a Cap and Trade regime is too flawed when too many parameters can be adjusted by regulatory agencies instead of market participants. Until there is a global commitment for the total amount of carbon emissions (cap) and change over time, and a trusted system to measure carbon emissions and offsets, other methods of reducing carbon emissions will be more effective.

    Topics: Sustainability Concepts | Comments Off on Cap And Trade

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