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Ryan McKenna

Summary

Jason Mathers and Michelle Manion summarize in their article "How It Works: Cap-and-Trade Systems" the function of a cap and trade system in the American market, particularly with regards to the CO2 market. They describe how the system would reduce emissions, save money, and increase profitability of power plants that can cheaply reduce their emissions. To summarize, "In general, cap-and-trade systems work best when the emissions have a negative impact on broad geographic areas or, in the case of heat-trapping emissions, globally. These systems are also successful when the cost of recucing emissions among polluters varies, and when emissions can be consistently and accurately measured." The flexibility of the system, as opposed to a pollution tax or a strict reduction across all plants, results in guaranteed emissions reductions.

Dallas Burtraw and Erin Mansur discuss the Environmental Effects of SO2 Trading and Banking in their articled titled the same. They talk about the Pro's and Con's of a cap and trade system, specifically using a computer model that estimates health benefits, reduction in sulfur deposition and cost savings. The results they found were that Trading results in health related benefits, a decrease in sulfur deposition, and a significant cost savings. Banking, or reducing emissions below the cap to use later, changes the timing of emissions but the geographic consequence they found was varied and they also found that banking emissions increased the installation of scrubbers in power plants.

Class Discussion

• We talked about the main points of each of the articles, including the pro's and con's of a cap-and-trade system.
• We talked about the marginal cost issue of reducing emissions and that the end result is to lower emissions as cheap as possible.
• We decided that over time the market would determine the correct cap.
• If there were a CO2 cap, how could the American market cap their emissions with such a strong dependency on Carbon based fuels.
• We talked about the feasibility of using a cap-and-trade system in the CO2 market.
• Is there anything else that should or could be done?
• What are other alternatives that could get the same results, i.e. cost savings, profitability, reduction in emissions?
  • A tax on exceeding caps, but if they can still earn a profit the firm will violate the cap
  • With trading, the market will correct the price if fines are below credit prices, so the fine would have to be infinitely expensive.
  • Professor Everbach proposed that an Authoritarian state could say "reduce emissions or we will shoot you."
• Why do we need an economic incentive? Why isn't the fear of global warming enough?
  • Talked about the wealthy being able to deal with problems of global warming, i.e. developing strains of plants that are sustainable without large amounts of water, or the building of dikes .
• Other comments about the articles.
  • What about Methane emissions

Sources

Burtraw, D., and Mansur, E., "Environmental Effects of SO2 Trading and Banking," Environ. Sci. Technol. 1999, 33, 3489-3494

Mathers, J, and Manion, M., "How It Works: Cap-and-Trade Systems," Catalyst Magazine, Union of Concerned Scientists, Vol. 4, Number 1, Spring 2005

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