Cap and Trade is a poor way to control carbon emissions for several reasons. In principle it would be equivalent to a carbon tax if applied to all carbon emitters, but can you really imagine putting a cap on each household and then allowing rich families to buy emission permits from poor families? It might be a nice way to transfer income, but it would be an administrative nightmare.
Cap and trade does seem to work if you only have large emitters that are easy to monitor. Even then it is vulnerable to evasion, and exceptions. It does require effective monitoring, and we in Ontario know that governments will even cut back on monitoring water safety to save money. It is hard to believe that any government can carefully monitor emissions by large corporations year after year while dealing with budget constraints and lobbyists pressing for “self regulation.”
But there is another problem that will soon raise its ugly head. As we move to a carbon tax, what do we do about the companies that have been given the right to emit under Cap and Trade schemes? A company that has been given an emission cap is legally entitled to continue to emit. If it has bought additional credits will it be possible to charge a carbon tax on emissions it has already paid for?
It may turn out that, where Cap and Trade has been tried, it will be a major barrier to effective carbon taxation. There must be a way around this problem, but I don’t see it yet. The public may have to buy back the rights. I am starting to think that we have been outsmarted. It could be that Cap and Trade was a brilliant maneouver to block a carbon tax and to transfer money to the wealthy owners of large emitters.