A test for a good carbon-trading system

David Jeffery of Oikos points to a column in Australia’s Sydney Morning Herald in which think-tankist Clive Hamilton lays out a seven-point test for an effective carbon-trading system. (An advisory panel to Australia’s right-of-centre prime minister John Howard is expected to recommend a cap-and-trade system today.) This is Jeffery’s point-form summary:

1. Comprehensive coverage of the main emissions sources.
2. A clear target.
3. No loopholes. (Hamilton reckons there shouldn’t be offsets or credits from actions like planting trees. I disagree, but the challenge is ensuring that offsets are genuine and robust.)
4. Permits should be auctioned, not handed out to existing big polluters for free.
5. It should be able to link in with foreign schemes.

I think this one’s problematic given all the trouble Europe has had with its carbon market. Easy linkages with poorly run markets (Hamilton cites Europe as an example of the sort of market any new one should link to). Back to the list:

6. Allow the market to work unconstrained.
7. Ensure medium-term economic certainty (ie, fixed emissions caps) but longer-term flexibility to adjust caps if necessary.

Let’s run Canada’s plan for heavy greenhouse emitters, which includes a limited cap-and-trade system for emissions, through this test:

  1. Mostly, although new facilities get a start-up holiday from compliance.
  2. Yes.
  3. No. Technology credits are purchasable for $15, rising to $20, though in diminishing quantity as time goes on.
  4. No.
  5. Limited. The government says it’ll explore linkages with the United States.
  6. Yes, except for the safety-valve of technology credits.
  7. No. Intensity-based caps are unpredictable because they depend on two variables (emissions and economic activity) rather than one.

One response to “A test for a good carbon-trading system

  1. Pingback: Not much hope for carbon-trading in Canada, says stock-market operator « The EcoLibertarian

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