Market mechanisms for regulation: Cap-and-trade and Obamacare
Jeffrey Frankel 27 February 2014
Market-based mechanisms such as cap-and-trade can tackle externality problems more efficiently than command-and-control regulations. However, politicians in the US and Europe have retreated from cap-and-trade in recent years. This column draws a parallel between Republicans’ abandonment of market-based environmental regulation and their recent disavowal of mandatory health insurance. The author argues that in practice, the alternative to market-based regulation is not an absence of regulation, but rather the return of inefficient mandates and subsidies.
Markets can fail. But market mechanisms are often the best way for governments to address such failures. This has been demonstrated in areas from air pollution, to traffic congestion, to spectrum allocation, to cigarette consumption.
Environment Politics and economics
environment, global warming, pollution, regulation, healthcare, Cap-and-trade, market-based mechanisms, Obamacare, EU ETS
The sordid history of Congressional acceptance and rejection of cap-and-trade: Implications for climate policy
Richard Schmalensee, Robert N. Stavins 07 March 2013
Not so long ago, cap-and-trade mechanisms for environmental protection were popular in Congress. Now, such mechanisms are denigrated. What happened? This column tells the sordid tale of how conservatives in Congress who once supported cap and trade now lambast climate change legislation as ‘cap-and-tax’. Ironically, conservatives are choosing to demonise their own market-based creation. The successful conservative campaign that disparaged cap-and-trade means it may now be politically impossible to promote it in the US. The good news? Elsewhere, cap and trade is now a proven, viable option for tackling large-scale environmental problems.
In both his second inaugural and his fifth state of the union addresses this year, President Obama renewed his commitment to address the risk of global climate change, due to increased concentrations of greenhouse gases in the atmosphere, largely (but not exclusively) a consequence of carbon dioxide (CO2) emissions linked with burning fossil fuels to generate energy.
US, climate change, Cap-and-trade
Still time to reclaim the European Union’s Emissions Trading System for the taxpayer
Ralf Martin, Mirabelle Muûls, Ulrich Wagner 24 May 2010
This week, the European Commission will release more details of its plans to tighten the greenhouse gas emissions targets in the EU’s Emissions Trading System. A key concern will be the potentially negative impact on the competitiveness of affected businesses. This column argues that industry is successfully exploiting such concerns to obtain free emission permits according to criteria that are too lax. Most of the exempt sectors would not close or relocate if they had to pay for permits, and removing these exemptions would raise €7 billion annually.
The European Commission is currently finalising the design of the third trading phase of the European Union Emissions Trading System (EU ETS), which will begin in January 2013 and last until 2020.The Commission’s stated objective is to increase the share of emission permits that are auctioned rather than allocated for free to “vulnerable” industries.
European Commission, Cap-and-trade, EU Emissions Trading System
Water licences valued at A$2.8 billion traded in Australia’s emerging water markets
Bob O’Brien 25 April 2010
With cap-and-trade schemes gaining momentum as a viable environmental policy, this column outlines such a market for water licences in Australia. Since the early 90s the market has grown to accommodate trade of nearly 3 billion Australian dollars worth of licenses with a total value of water access entitlements at nearly $A40 billion.
The basic economic problem – scarce resources squared up against insatiable demand – has long been recognised as relevant to environmental issues (Pigou 1920). Many studies have focused on the scarcity of natural resources – particularly fossil fuels – but what about water, one of the most vital fuels for human life? In many areas of the world this resource is desperately scarce, and if some climate-change forecasts are to be believed, the situation will only get worse.
Environment Frontiers of economic research
Australia, Cap-and-trade, Water trading
Why cap-and-trade should (and does) have appeal to politicians
Robert N. Stavins, Robert W Hahn 13 April 2010
Are cap-and-trade schemes working? This column presents a summary of eight existing schemes arguing that half meet the independence property whereby the initial allocation of property rights does not affect the environmental or social outcome and the scheme is cost-effective. This success is a contrast with other policy proposals where political bargaining reduces the effectiveness and drives up cost.
Economists have long recognised that both price and quantity mechanisms, such as emissions taxes and cap-and-trades systems, can be cost-effective ways of improving environmental quality (Pigou 1920 and Dales 1968). The politics of the two approaches is a different matter.
Environment Politics and economics
climate change, Cap-and-trade, independence property