Wednesday, March 05, 2008

Pricing Carbon


Putting a Price on Carbon By Phil Davies (image from www.instablogsimages.com) What is the difference between a cap & trade method for reducing emissions and a tax? Not much. Economically, it will do the same thing, an equilibrium price will be obtained and, as I am learning from economics at BGI, the tax burden will be borne by the party (buyers or sellers) least able to avoid them; the party least sensitive to price changes. Politically, the answer is different, and that is what the author delves into in some detail...seeking to determine the best way to achieve what will be the same outcome no matter what is done.

According to a recent article in Agence France-Presse,
US ready for 'binding' reductions of greenhouse gases.

I for one, do not believe "we" are. There is a pretty big caveat in the language used by the US representatives,
Daniel Price, assistant to President George W. Bush for International Economic Affairs and James Connaughton, chairman of the White House's Council on Environmental Quality. If the developing economies (China & India) are not part of the agreement, we'll take our carbon intensity and go home. Of course, it's not that simple. From the article:
But critics of the US position say that trying to force China and India into accepting binding commitments of greenhouse gases is neither realistic or fair.
"It isn't going to happen," said Stephan Singer, a climate change expert at the World Wildlife Fund.
He points to the fact that China's per capita output of greenhouse gases is far below either the United States, which has the highest levels in the world, or Europe.
"Why should they (China and India) do something when the United States has done nothing for the last eight years?", he said.
Good point. Prisoner's Dilemma anyone?

More recently, Point Carbon has announced that the Global 2008 carbon market expected up 56 percent. So, does this mean there may be a better financial impetus for the US to get in on this game? Are US firms that have made investments in low carbon technologies ready to make some money? Are we missing out?


Carbon trade should also rise in the United States, by many counts the world's largest greenhouse gas polluter, as it edges toward mandatory greenhouse markets.
Ten states in the U.S. Northeast will start regulating the main greenhouse gas carbon dioxide from power plants starting next year, but forward trade has already begun.
What will happen to electricity rates in the already expensive Northeast? Will the price of carbon help create additional efficiency initiatives at the commercial and personal level? This is the start of internalizing the externalities associated with carbon-based energy sources. What will the price signals create, in addition to market participant motivation. I can see the headlines now from the reactionaries, "Massive Job Loss Linked to CO2 Emissions Regulation; Leaders Advise Population to 'Stop Breathing'".

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