Wednesday, November 14, 2007

Toward a Moderate Climate Policy

The NYT has a review of the Gingrich, Nordhaus/Shellenberger, and Lomborg books, which all advocate for a more pragmatic environmental policy.

I'm kinda in favor of a carbon trading system, but here's my vague confusion with the mechanics: Suppose we auction off a fixed number of carbon permits (rather than allocating a certain number of them to certain emitters). What prevents a group that wants a more radical reduction in emissions from raising a bunch of money and buying the permits, reducing the supply and spiking the price to the point where we get serious economic damage?

Now, permits will obviously be good only for a particular year, so we'd eventually exhaust the funds of troublemakers. But it would seem that they could do a lot of damage in the short-term.

Maybe the right approach is to answer the following two questions:

  1. Who is forced to obtain a carbon permit? Fossil fuel producers? Power companies? Farmers?

  2. And the reverse question: Who's allowed to buy a carbon permit? Anybody? Or only the entities that are forced to obtain one in the first place?

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