The Big Stick: Cap and Trade in the Peoples Republic of Carbon

A good summary article from Maximillian Auffhammer.

I'm really not sure if notable peope are wise enough to avoid noting the cap-and-trade purpose is to protect the apparently very powerful incumbant generators (and miners, etc.), or if somebody, somewhere, actually thinks it's an honest alternative to a carbon tax.

The Big Stick: Cap and Trade in the Peoples Republic of Carbon | Energy at HAAS:

The National Development and Reform Commission, which is the arm of the Chinese government responsible for economic planning, has provided coarse outlines of a national market starting in 2016, which will cover 3-4 billion tons of CO2 with a volume of roughly 65 billion US Dollars by 2020. This is twice the volume of the European market. And some simple algebra suggests that the planners expect permits to trade at just below $20, which is higher than anywhere else in the world currently or in any of the regional markets in China. This is exciting news and will surely provide some significant momentum in the upcoming climate talks. 

I am somewhat puzzled by the apparent choice of a national cap and trade system over the other price based alternative to a CAT: a carbon tax. The reason I am puzzled is deeply rooted in some simple political economy. Cap and trade generates valuable assets (permits), which are frequently handed out to carbon intensive industries, which would otherwise fight the regulation and possibly prevent it from being implemented. If the government hands out permits, it gets no revenues from these permits.

A carbon tax, on the other hand, is charged on each carbon atom and most likely charged fairly far upstream the carbon river. It generates revenues for the government (especially at ~$20 a ton). 

The entire aricle should be read unfiltered at eneryathass

I will provide a response to Auffhammer's statement, "One argument, which is often used against a carbon tax is that it does not guarantee what emissions reductions will be in any given period..."

A real problem of the EU ETS has been that it has been used to prevent emissions reductions. Most notably in my opinion, the EU ETS has been used to justify Germany's shutting of nuclear, and continued use of lignite, with the claim European emissions will be the same regardless - because of the ETS.