Cap-and-trade

Paul Krugman supports cap-and-trade legislation proposed by Congressmen Henry Waxman and Edward Markey even though, he writes, the legislation

sets up a system under which many polluters wouldn’t have to pay for the right to emit greenhouse gases — they’d get their permits free. In particular, in the first years of the program’s operation more than a third of the allocation of emission permits would be handed over at no charge to the power industry.

…[H]anding out emission permits does, in effect, transfer wealth from taxpayers to industry.

In a just world (or a true democracy), every American would be given a piece of paper providing the right to pollute 1/300-millionth of the allowable national CO2 total. Power plants would have to buy those rights from Americans or stop releasing CO2 into the air.

If Jane Smith wanted to further reduce America’s greenhouse gas emissions, she could simply rip up her certificate and America’s CO2 emissions would have to fall by 1/300-millionth. That would simultaneously make other certificates more valuable to their holders and more expensive to polluters. The CO2 emitters who create the least economic value per unit of CO2 emissions would shut down or find ways to produce with fewer CO2 emissions.

Of course, Washington is run by corporate lobbyists, so polluting companies get free pollution rights and American citizens get nothing.

Posted by James on Monday, May 18, 2009