http://www.climaticoanalysis.org/post/how-to-design-a-domestic-emissions-trading-scheme-notes-from-australia-and-the-eu/ Independent analysis of climate policy Fri, 27 Jan 2012 14:01:24 +0000 hourly 1 http://wordpress.org/?v=3.2.1 http://www.climaticoanalysis.org/post/how-to-design-a-domestic-emissions-trading-scheme-notes-from-australia-and-the-eu/#comment-168 Dan Mon, 29 Dec 2008 01:49:45 +0000 http://www.climaticoanalysis.org/?p=1457#comment-168 pricing is an issue that designers of a cap and trade scheme shouldn't be concerned with - the main reason for using cap & trade over tax is that it discovers the price at which the cap is metcomplied with. no-one knows what the price will be in EUETS, rggi etc, proving that a tax can't be set at a level that will deliver a desired level of emission reduction. also it's hard to manipulate the price beyond ceilings and floors - the price will reflect the cost of compliance with the cap and allocation methods (auctioning, grandfathering etc) don't have a significant impact. grandfathering is (i) technically challenging (you can't determine a fair number to give out), and (ii) because the credits have an asset value regardless of whether you get them for free or not, recipients often pass the costs onto their customers anyway for a windfall (otherwise they could shut down/reduce trading and sell for pure profit). hence auctioning is preferable for non trade exposed industries like power generation. different people end up with the money, but the carbon price is the same. the point of this ramble is that australia and other countries looking at cap and trade will have a lot of issues like the ones you mention but they are all technical / political issues; the real number that matters is the size of the cap. pricing is an issue that designers of a cap and trade scheme shouldn’t be concerned with – the main reason for using cap & trade over tax is that it discovers the price at which the cap is metcomplied with. no-one knows what the price will be in EUETS, rggi etc, proving that a tax can’t be set at a level that will deliver a desired level of emission reduction. also it’s hard to manipulate the price beyond ceilings and floors – the price will reflect the cost of compliance with the cap and allocation methods (auctioning, grandfathering etc) don’t have a significant impact. grandfathering is (i) technically challenging (you can’t determine a fair number to give out), and (ii) because the credits have an asset value regardless of whether you get them for free or not, recipients often pass the costs onto their customers anyway for a windfall (otherwise they could shut down/reduce trading and sell for pure profit). hence auctioning is preferable for non trade exposed industries like power generation. different people end up with the money, but the carbon price is the same. the point of this ramble is that australia and other countries looking at cap and trade will have a lot of issues like the ones you mention but they are all technical / political issues; the real number that matters is the size of the cap.

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