Cap and Trade Issues?

It seems that more and more people are starting to see the proverbial light at the end of the tunnel, which is the simple truth that fossil fuels are getting more scarce…causing a long term rising trend in prices and increased exploitation of some of the most remote and unspoiled places on the planet. Obviously relying on fossil fuels for our energy requirements can not continue indefinitely until the last drop of oil or chunk of coal is removed from the ground.

For quite some time now governments across the globe have been subsidizing the cost of oil/fuel thus keeping the price artificially low to forestall increasing fuel prices and the subsequent slowing of their economies.  However, at some point in the past they should have switch policies in the opposite direction, letting the markets determine the real value their citizens and businesses pay and/or taxing the use of fossil fuels to encourage the use of cleaner and more environmentally friendly options.  In retrospect it’s probably only human nature to desire the cheap fossil fuel party to continue for as long as possible especially when switching to alternatives or the job of cleaning up the mess appears somewhat daunting and not nearly as much fun.  Judging from worldwide news headlines a change in attitude seems to have occurred and everyone seems to be catching “green fever”.  Perhaps the situation is being fueled by the worldwide economic slowdown as governments are experiencing lower tax revenues, and at the same time are being forced in increase spending on unemployment benefits, stimulus packages, and bailouts etc, leaving little funds for subsidizing oil prices.  The silver lining with a large downturn in the world economy is that fuel prices drop due to falling demand, but that situation won’t last once supplies are adjusted and/or modest recoveries begin.

However, if clean sustainable energy is embraced there are many benefits. For instance, the elimination of a substantial amount of air pollution, acid rain, ozone alerts, mercury emissions etc., and a simultaneous gain in additional health benefits such as a reduction in birth defects and asthma just to name a few. Besides it’s obvious to even the most casual observer that fossil fuels are becoming increasingly expensive and damaging to the environment.  It only seems logical that fossil fuels should be taxed to properly cover their real costs to society, once such costs are discovered and/or perceived to exist. Sadly so far it seems the majority of residents even in a single nation, state, or city have yet to have enough forward thinking to have previously passed laws or adopted such practices.  Perhaps now with increasing evidence to suggest that the longer the period of waiting to take action the higher the overall costs and the decreasing likelihood of possibly preventing or averting a full-blown climate disaster, could spur action among a few groups to finally stop maintaining the status quo and go about the business of trying to create a better future.

The current Cap-and-Trade proposals being entertained by various governments are to be commended in spirit and intent, but seem needlessly overly complicated and thus no doubt will contain a few cracks in the rules that could be exploited by game players, and special interest groups to cheat the system or hide what’s really happening. Obviously this is not something anyone wants to occur if reducing CO2 emissions is the primary goal.  The Cap-and-Trade system has many flaws, in particular Caps are hard to verify and enforce, not to mention rules in general are inherently limiting and will no doubt be changed many times in the future increasing confusion and causing compliance difficulties.  Some nations could easily issue too many permits, and those extra permits would then be traded or sold to other nations, which it turn would use them to add more CO2 than was originally intended.

An option that could work in tandem or replace Cap-and-Trade is an annually rising carbon tax or fee on a finite amount of carbon (say a kilo, or a ton, etc.) that was imposed straight out of the mines, or at the point of importation of any carbon goods.  That way the fees are fair and transparent and would correspondingly increase the cost of goods containing carbon and at the same time lower the relative cost of non-carbon based alternatives.  Governments could then divide those funds collected amongst every tax paying voter to help them pay the initial premium cost of clean and green alternatives that exist due to low production volumes.

I would  like to here some thoughts from others on this subject.

Sincerely,

Ken Burridge