NCPA - National Center for Policy Analysis

Second Thoughts On "Voluntary" Carbon-dioxide Emissions Trading

August 3, 2001

Having disposed of the Kyoto Protocol, the Bush administration is considering a "voluntary" program to curtail carbon-dioxide emissions. In some circles there is enthusiasm for creating a market to trade emission rights. Firms emitting fewer pollutants than they are allowed would be able to sell their emission rights to heavier polluters.

This would extend to CO2 the current sulfur-dioxide emissions-trading program signed into law under the previous Bush administration.

But there are problems with this approach, say experts on regulatory economics.

  • Any concession by the Bush administration that CO2 levels should be reduced would undermine its argument that current science does not justify action on alleged global warming.
  • If CO2 levels are already too high, how can any program to make fossil fuels more affordable be justified?
  • "Market mechanisms" such emission-rights trading aren't really markets -- simply schemes to use taxes and quotas to reach politically-determined objectives.
  • While the costs of controlling SO2 emissions were high relative to the benefits achieved, the costs of a new CO2 suppression policy are vastly greater -- and the benefits less certain.

A cap-and-trade scheme, say economists, would lead to a strong lobby opposing any liberalization of fuel usage caps because firms in a position to sell emission rights would not want to see the value of those rights diminished.

Source: Robert Crandall (Brookings Institution) and Fred L. Smith (Competitive Enterprise Institute), "CO2 Controls Are a Bad Idea, 'Voluntary' or Not," Wall Street Journal, July 31, 2001.


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