> It just seems odd to see a hybrid system referred to as a
> "conventional" cap and trade;
It's conventional cap and trade + an extra feature. There's such a
momentum for cap and trade now, I think we need to think about ways to
modify the scheme to make it better, preferably without mentioning the
t word.
> From an economic standpoint, the only real reason to prefer cap and
> trade systems over emissions taxes is [we might target too low a price and
> thereby miss the all important cap threshold?]
I really have trouble following that argument. If we think we need to
reduce by 50% by 2050 we can make an estimate of the required tax
path, say $10 in 2010 and $150 in 2050, and as time passes we can
annually tweak that so that the actual path ends up with either $100
or $500 in 2050. What's different about that from choosing an
emissions reduction path with a cap and finding that the price of the
permits slowly rises towards $100 or $500 (except for the needless
shor term volatility)?
> As far as limiting price volatility goes,
So what's wrong with government limiting volatility to zero?
I can think of two arguments that'll be made. One, if the government
sets the amount of free permits and the price wrong, it'll have to
transfer a lot of money to industry and it's a pretty obvious transfer
of money. On the other hand, the windfall profits in the EU-ETS were
obvious enough, and it really shouldn't be that hard to balance the
books by tweaking free permit issuance and permit price on an annual
basis.
Secondly, I guess people will cry communism, because the power of the
market is being subverted by government intervention. That's rubbish,
because we aren't talking heating oil or milk, and there won't be
butter mountains or gas line type shortages. But it might still be
brought up as a rhetorical stick.
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