...as I observed in my earlier posting on this issue (here) the graph from Richard Woodward's presentation (above) indicates that trading volume and the price of SO2 allowances were both declining well before the DC Circuit vacated the CAIR rule. This does not necessarily mean that the trading market was dying; and after all we need to bear in mind that the trading market itself is not an end in itself, but simply a means of minimizing the costs of complying with an exogenously set environmental protection goal. It could be that the SO2 trading program has served its purpose and is now ready to be superseded by new programs with somewhat different aims, which (for reasons relating to NAAQS compliance in downwind states) are not amenable to widespread emissions trading.
If, and it remains a big if, SO2 emissions trading is winding down, what are the implications for the theory of emissions trading generally, and for trading programs relating to other pollutants, such as carbon dioxide? I find these questions immensely interesting, and just wish I had time to deal with them right now.
My opinion? The theory is sound. The real question is whether the theory is so sound that the practical implementation resulted in suicide for Cap'n Trade, or whether Cap'n Trade is a theoretical construct, similar to Hotelling's rule, which, while nice on paper, is confounded when put into practice by the annoying nuisances of the political, legal and economic systems.
