Monday, October 20, 2008

Cap And Trade In NY Times

A story about "Reggy" (RGGI), the regional cap and trade program set to go into effect in the American North East (participating states include New York, New Jersey, Delaware, Maryland and all six New England states — Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont).

An interesting twist: during the last several years emissions in the participant states have gone down instead of up, due to the current economic slowdown, mild weather, and a gradual shift to natural gas.

Roger Pielke Jr. thinks this tells against the whole idea of Carbon Trading because, from their current level

...emissions will have to grow by more than 1% per year for the RGGI to even have any effect on business as usual. And even a growth rate of 2% would result in a reduction in emissions from 2008 of less than 4%. So for RGGI to actually make a difference on emissions trajectory for these 10 states will require a stark departure from emissions trends over the past 9 years. Energy prices, fuel switching, and the push for alternative energy all work against this for this region. Champions of cap and trade will find themselves in the awkward position of cheering for rapid emissions growth for RGGI to show any teeth. Otherwise, it is just business as usual.

But if "business as usual" is a downward trend, what is the problem other than the set-up costs involved in RGGI look somewhat ill-spent? But then the system is there should, upon an economic recovery, the necessary technological advances not have emerged to ensure a permanent reduction in emissions.

More ominous, perhaps:

This fact is compounded by the fact that leftover credits from one auction will rollover to the next, which means it is possible that 2009's extra 20 million tons will roll over to 2010, whose extra 40 million will roll over to 2011 and etc. This effectively means that the "market signal" which will demonstrate the time to pour money into clean energy industries and technology will never arrive.

...which point is perhaps met by noting that the total allowances available can be adjusted up or down as required.

(Note: you can see, though, how the application and adjustment of a simple carbon tax could meet all of these challenges much more quickly and efficiently)

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