Waves of the Future - The Magian Age

Climate Change, Non-Renewable Resources, Energy, Contaminants, Carbon Pricing...

A Cost and Benefit Comparison
of Cap-and-Trade and the GEE for
Carbon Emission Reduction

Is cap-and-trade the best strategy we have for global warming and greenhouse gas reduction?

Remember the turnaround in the renewable energy sector in 2008 right after oil hit record prices? It happened so fast that most were caught unawares.

Didn't anybody think that such quick changes could point to a powerful solution for global warming and the environment?

Someone did and developed a structural strategy based on the same forces that delivered the turnaround.

See also Book II of the Waves of the Future Series

The idea behind structural approaches is to try to deal with the causes of problems rather than their symptoms. The way economies currently operate is very destructive to the environment.

We can try to mitigate the problems (the symptoms) with strategies such as cap-and-trade. However, the economic system (the cause) would continue on as a destructive force.

Fix it could be a much more effective and less costly way to deal with global warming and other environmental issues. This is the idea behind Henderson's Green Economic Environment (GEE).

A Comparison Between
Cap-and-Trade and the GEE


Cap-and-trade would set limits on CO2 and other carbon emissions. Companies not able to meet those would buy credits from others via a newly established trading system.

The system addresses the symptoms (emissions levels) rather than the cause of problems.

The approach would involve significant costs. A trading system would need to be set up as well as a new bureaucracy. Procedures would have to be established to measure carbon emissions for individual businesses. How much credit would an acre of forest be worth? What if the forest is very young? Etc.

Companies would have to waste time evaluating emissions, trading, and reporting to governments. This complexity would make it more prone to fraud than simpler alternatives.

It may also lead to economic distortions as goods would be created for the credit trading system rather than consumer markets.

Cap-and-trade would be more bureaucratic and costly to manage and enforce than the GEE.

Caps & the GEE

For a brief overview of the strategy, see The Green Economic Environment.

The GEE would involve minimal bureaucracy, no emission trading system, and very little reporting, if any, for most businesses.

Companies would see the price of non-green production inputs rise and make simple business decisions as to switching to greener materials.

The higher price of unenvironmental goods would change the incentive structure of economies, directly addressing the causes of problems and boosting demand and markets for green products.

Because it is simpler and more market friendly, the GEE would be much more powerful. It would also be less prone to fraud.

It could be used together with caps to meet current Kyoto Accord targets or as a new more powerful and flexible system.

In scientific lingo, a structural approach would fix the causes of problems by building the cost of externalities into the price of goods, therefore resolving the current imbalance existing in economies.

See also below:
Regulations (Caps) vs. Dynamic Taxation

A View of the New Green Society and Sustainable Economy

Additional information* on the subject:

Cap and Trade versus Carbon Tax
Excellent YouTube video on the advantages of revenue-neutral carbon taxes over cap-and-trade. AIER Global Climate Change.
Source: American Institute for Economic Research. Kenneth P. Green.

Better Than Cap-and-Trade
A quick look at revenue-neutral carbon taxes.
Source: Detroit Free Press (Freep.com), Jack McHugh.

Regulations (Caps) vs. Dynamic Taxation
See below....

* See our Terms and Policies

Regulations (Caps) vs. Dynamic Taxation

Regulations tend to be non-dynamic. That is, companies try to meet limits but have no reasons to do better and exceed them. Caps can be renegotiated and increased, but it may be difficult to do so.

Taxation is dynamic in nature. Companies would not only meet limits but exceed them. For example, if the price of oil goes up, manufacturers that need it would look for cheaper alternatives. After caps are reached, they would continue to do so because it would further decrease their costs and increase their profits.

The GEE structural strategy could work as is with Kyoto targets and be more powerful and effective than cap-and-trade.

It could also work as a stand-alone 'economic restructuration' in which international taxation rates would be negotiated instead of caps. Initially, those could simply be set high enough to approximately deliver carbon emission levels similar to those already agreed upon.

This would result in a more flexible and much more powerful and market-integrated system. The strategy would also be more efficient and less costly to enforce than cap-and-trade.

More information: NRDC Global Warming Cap-and-Trade