Cap-and-Trade - Old Idea

(5/22/2009) - Sometimes, when I reflect upon the fact that my 25th birthday is now visible on the horizon, I vainly feel that I am becoming old.  Then, I read things that make me feel young.  I didn't know this, but apparently cap-and-trade is not a new or untested mechanic - it was introduced in a 1990 bill that has successfully limit sulfer dioxide emissions and curb the effects of acid rain.  From a excellent profile of Congressman Henry Waxman:

"The most novel facet of the legislation was its answer to the question of what to do about acid rain, one of the most high-profile environmental concerns of the era. Fixing the problem required major reductions in the pollutants released by coal-fired power plants. In 1988, Daniel J. Dudek, an economist working for the Environmental Defense Fund, had hit upon an elegant free-market solution: utilities would be granted a certain number of emissions allowances, allowances that could then be traded if they didn’t need to use them. It was called "cap and trade." Bush loved the idea, and Waxman borrowed it."

"The utilities protested. A study by the Edison Electric Institute claimed that the acid rain provisions would add $5.5 billion annually to consumers’ electrical bills. The result turned out to be something quite different: as of 2006, nationwide electricity rates had actually dropped below their 1990 levels, while the costs to utilities, according to the EPA, were a quarter of what industry had predicted. Sulfur dioxide emissions, meanwhile, have dropped by 46 percent since 1990. The legislation’s success is one of the principal reasons that a similar system has become the preferred paradigm for drafting climate change legislation."

My guess is that the estimated costs of the current cap-and-trade legislation are exaggerated as well, because they tend to assume that the market is currently operating at 100% efficiency, there is no room to save money through increased efficiency, and that the cost of renewables will continue to be high.