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Cap and Trade: A Tangled Web of Good Intentions and Bad Policy - Part 2

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  • Michael Hoexter
    Friends and Colleagues, I ve just posted the second part of the longer critical piece on Cap and Trade (it looks like there will be 3 parts in total).
    Message 1 of 1 , Oct 29, 2009
      Friends and Colleagues,
      I've just posted the second part of the longer critical piece on Cap and Trade (it looks like there will be 3 parts in total). 

      Part 1 is here:

      In this second part, I highlight one key aspect of my argument by suggesting that cap and trade leaves a gulf between "gutless" regulation and the need for extremely harsh and arbitrary regulatory measures to actually meet an ambitious cap.  What lies within this gulf is the faulty price signal of cap and trade as outlined in Part 1.   We can understand now that the tendency of real cap and trade systems to err on the side of "gutless" regulation has in part to do with this discontinuity within the policy framework.  

      I point out that cap and trade despite the fact that it is "packed with markets" out the wazoo, is not the epigone of market rationality.  It interferes with the economic decision making of firms regarding the carbon price signal, which departs from most economists' and businesspeople's understanding of how markets work.  By layering a market on top of the real market, it will produce non-rational decision-making with regard to carbon.  A carbon tax or fee despite "containing less markets" is the choice to harness rational decision-making of individual economic actors in aggregate. 

      I then highlight what I am calling the fundamental challenge of climate policy which means stopping our societies' tendency to use up all fossil fuels and to overexploit forests and the soil.  I point out that government, which has as an institution been under attack over the past 30 years, is the only institution that can do the job.  Cap and trade, because of the hand-off of responsibility to an unaccountable permit market, interferes with the re-legitimation of government.  Without a legitimated government within the area of climate and energy policy, no climate and energy policy is going to be very effective.  It has not yet been established, at least in the United States, that it is government's job to protect us and the environment from climate catastrophe.  

      Prior to outlining a couple of alternative policy options (in the next part), I identify 11 fundamental tasks of any Comprehensive Climate and Energy Policy, which I attempted to abstract from any particular policy approach.   

      Please post or send your thoughts and comments!

      All the best


      Michael Hoexter
      Terraverde - Energizing Green Markets
      Belmont, CA 94002

      Blog:  www.greenthoughts.us
      Tel: (650)274-9360
      Fax (650)649-1788
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