A statement of the blindingly obvious

Miliband\’s remarks are designed to illustrate the government\’s overall approach to meeting the 2050 target which will not involve imposing a blanket 80% cut on all areas of the economy. The white paper is expected to build on government plans to tolerate relatively high emissions in one area if action is taken in other areas by, for example, lagging lofts and driving less.

Allow, for a moment, that the extremists are correct. That we do indeed need to reduce emissions by 80%.

OK, so, which emissions should we carry on emitting and which should we not?

Clearly and obviously, we should continue with those emissions which provide the highest value in utility per unit of emission. That is, we should attempt to satisfy as much human desire as we can within our new imposed limit.

Now that might mean that all emissions allowances are devoted to allowing the beef industy to continue. Or it might be aviation. Or it might be allowing coal fired barbeques. We don\’t as yet know….but we do have a system of finding out.

Cap and trade*: the permits to emit will be bought by those who value their emissions more highly than others value theirs. Thus each unit of emissions will contribute the maximum amount possible to human happiness. (This would still be true even if we had personal carbon allowances in the name of equity.)

It might even be that the rest of the economy is carbon neutral while aviation continues as we spend all of our allowances on that sector. If that\’s the way it pans out, well, that\’s the way it pans out. The maximum utility within our new constraints.

* No, still not a fan of cap and trade for they way that politicians will have their thumbs on the scales, would prefer carbon tax, but this is just an argument here, not the revelation of the one true faith.

4 thoughts on “A statement of the blindingly obvious”

  1. This is a good explanation of the efficiency of emissions trading. I this such trading makes most sense when government auctions permits rather than gives them away as under the European Union emissions trading scheme. Then, just as under a carbon tax, the government has a revenue which it must do something with (hypothecate for climate change purposes, allocate to adults on an equal per capita basis or bail out the banks!). Obviously equity (however defined) considerations are important here.

  2. It’s not just the political interference that makes cap-and-trade a rubbish system.

    You seem to be referring to extending it to the individual level, in which case you are referring to something like Personal Carbon Allowances, otherwise known as carbon-rationing. Apart from the usual economic objections to state-rationing, the transaction costs of this approach are enormous and pointless.

    If you didn’t mean extending it down to the individual level, how will you bring things like BBQs and beef into the system? Again, because of transaction costs, cap-and-trade is normally limited to the less-than-50% of carbon-emitting activities that are at a large enough scale for this to be a vaguely viable approach. But if it only applies to half the emissions, how will you establish the relative utility-values of those things that are covered by cap-and-trade and those things that are not?

    Stick to carbon tax. This isn’t a grey or moot point, as a lot of economists suggest from their ivory towers. It is black-and-white. Cap-and-trade stinks, for many reasons besides the ones given here. See http://www.forever-fuels.com/files/u3/cap_and_trade_4000.pdf for some others.

  3. Any significant reduction in emissions over a short span of time will, in raising costs of production, lower overall living standards for very many and will be a virtual death sentence for many, somewhat invisible, near the margins of existence.

    Those agitating for such dramatic changes should be forced to face the dramatic consequences.

Leave a Reply

Your email address will not be published. Required fields are marked *