Jeez. How can the economics be botched so horribly in the first two paragraphs of a NYTimes article (States aim to cut gasses by making polluters pay)?
Ten states from Maryland to Maine are about to undertake the nation’s most serious effort yet to tackle climate change [RGGI], putting limits on carbon dioxide emissions from utilities and making them pay for each ton of pollutants.
The program is due to get off the ground in nine days, but already there are worries that it may fail to reduce pollution substantially in the Northeast, undermining a concept that is being watched carefully by the rest of the country, by Congress and by European regulators.
...
The concept has been praised by environmentalists and state officials. But the emissions cap was based on overestimates of carbon dioxide output, which has dropped sharply from 2005 to 2006 and is on a lower trajectory than anticipated.
So auction demand may be weak at the start, with millions of allowances the states planned to sell not immediately needed. And with the cap on emissions most likely to be higher, at least initially, than the plants’ actual carbon-dioxide output, it may be many months before utilities have an incentive to cut pollution.
There is nothing wrong with the concept of cap-and-trade. What is wrong here is the implementation. Either (a) too many permits are being sold for various reasons (just like in the European carbon market) or (b) the right amount of permits are being sold and carbon is already below the cap, leaving some permits on the table. With (a), the thing to do is reduce permits in the future (i.e., there is nothing wrong with the concept). With (b), nah, they are selling too many permits.
