EU Cap and Trade Analysis From MIT

Having largely opposed C&T in favor of a carbon tax, I feel I need to link to this MIT and Pew report (and its accompanying summary presentation and press release) that concludes that C&T is working pretty smoothly in Europe.

Some things to note:

• The EU ETS is mostly a pre-allocated system, i.e., permits are not auctioned, with allocation determined by "grandfathering".



• It covers only power and industrial emissions.



• The price evolution of the 2007 and 2008 permits are wildly different, with the 2007 permit prices collapsing and the 2008 prices maintaining a trading range.



• MIT concludes that the economic impact has been minimal.



• I notice that the report doesn't really cover whether carbon emissions were actually reduced.

I'm still skeptical. Grandfathered permits seem like a giveaway program and we still have no experience with auctioned permits. I assert that you can do just as well with a carbon tax, which is administratviely simpler, easier to adjust, and more comprehensive.