Cap-and-Trade, and the Marginalization of "Radicals"

(12/3/2008) - A few days ago, a group of climate change activists "invaded" Environmental Defense's D.C. office.  The group, who object to Environmental Defense's (ED) support of carbon trading programs held signs while the daughter of ED's founder read a statement.  She said that ED's programs had "utterly failed, serving only to provide huge profits to the world’s most polluting industries."

I'm sometimes asked whether or not I think cap-and-trade is a good idea, to which I respond, "Which cap-and-trade?"  There are many different versions of the system, and I'm not familiar with the specific cap and trade program promoted by ED to which the protesters have taken such offense.  

The general idea behind cap-and-trade is that government sets a limit to how much pollution (usually CO₂) can be released in the country, and companies trade the rights to pollute.  If this sounds vague, that's because it is.  How these vagaries are filled in determines how the system functions.  One of the sticking points is how the rights to pollute are distributed.  In some systems, the rights to pollute are given away.  This basically amounts to a government handout because politicians get to decide which industries should be allowed certain emissions.  If the coal-industry is given rights to 60% of CO₂ emissions but only end up emitting 50%, they can sell the rights to pollute to industries without as much political pull.

I believe that the proper way to do cap-and-trade is to auction off the rights to pollute.  After all, we all "own" the air, so we should all get something in return when something pollutes it.  Ideally, the government would set emissions goals every year based on sound scientific information, and auction off the rights to emit.  Companies would then buy the rights to pollute in an auction.  The more a company needs to pollute to profit, the more it will be willing to pay.  If a business can figure out how to produce something without polluting very much, they can sell their previously-purchased rights to someone else.  In this way, some companies might profit, but the aggregate effect should come out even - as many companies lose money as gain money.  The other advantage of this system is that citizens receive compensation, either in the form of increased spending or lower taxes.

From what I've seen, a properly administered and regulated cap-and-trade system is very similar to a carbon tax, with one key advantage when it comes to climate change: Cap-and-trade allows government to set emissions caps and industry to set the price.  With a carbon tax, government sets the price and industry sets the cap. 

One problem that will effect either these systems is enforcement and measuring emissions.  Calculating the emissions of a coal-fired power plant is relatively simple.  But what about the methane produced by cows in a field?  Another issue will be integrating these systems into the world market.  If the United States adopts cap-and-trade, but Mexico doesn't, it will give companies more incentive to move to Mexico, where they can pollute what is essentially the same air but without the cost. 

If you disagree, I'd like to hear what you have to say in the comments.  I have gone back and forth on this issue over the years, so this is your opportunity to change my mind yet again.

A Note on "Radicals"

The "invasion" tactic has been used off and on by environmental advocates over the years.  Tree-sitting is another version.  The employers of these tactics are often labled "radical", as in "radical Islamic extremists."  In this context, the term "radical" is pejorative.  I think the term "marginalized" is a much better word for describing both environmentalists and terrorists. 

Marginilized groups feel, for whatever reason, that they are excluded from primary political processes.  The marginalization that act in "radical" ways is often paired with a strong belief that the mainstream part of socieity is morally errant or corrupt.  "Radical" activities such as these invasions or the recent attacks in Mumbai act as PR stunts that draw attention to the marginalized group (though, in the case of terrorism, other goals may be accomplished as well).  The catch is that these sorts of activities often hurt a cause more than they help it.  John Oliver explains: