Wednesday, June 11, 2008

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.

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