It runs together several distinct things
There’s been a nice, coherent-if-incipient debate on cap-and-trade on this blog lately, which I’ve alas been too busy to reply to. But I wanted to throw in just one small thought: it just might be time to ditch the whole notion. It conflates at least three things together, and as they are all quite different, the “trading debate” as we know it is both confusing and confused.
Cap-and-grandfather: A market-based system in which existing polluters are granted the right to continue polluting, modulo some typically minor and politically negotiated reduction. This right comes in the form of "allowances" that polluters can, as we all know, sell to other polluters. Such systems are manifestly unfair and easy for corporations to game (witness the first phase of the EU’s trading system), but defended by “realists” (like, say, Environmental Defense and the folks at the Pew Climate Center) as necessary in order to get corporations to cooperate with the drive toward national climate legislation. Pew’s Eileen Clauson, by the way, goes out of her way to talk about cap-and-trade as if it were, by definition, cap-and-grandfather, presumably as a way of arguing that there is no alternative.
But there are alternatives — actually two — and that’s excluding a straight-ahead carbon tax.
Cap-and-auction is a market-based system that, while superficially similar to cap-and-grandfather, is actually quite different. Emission allowances are auctioned to the highest bidder instead of being grandfathered — this means that there’s no windfall for existing polluters. It also means that there’s a lot less trading (though allowances remain tradeable) because, typically, polluters would only buy the permits they need. Crucially, cap-and -auction systems allow the government to collect the auction fees and then recycle them — to RE / EE funds, Just Transition Funds, “Sky Trust”-like revenue recycling systems, payments to a global adaptation fund, whatever. Some economists say that, in this, cap-and-auction is pretty much identical to a carbon tax, save that it’s more likely to actually be adopted, at least in the U.S. I’ll have to take their word for this.
And then there’s the global side of the trading debate, the one that concerns burden sharing between rather than within nations. Here there’s a third variant of cap-and-trade, also very different from cap-and-grandfather, which we might as well call cap-and-allocate.
Cap-and-allocate systems are pretty notional at this point. But the global climate equity debate has everything to do with them, which is easily seen in the fact that both the venerable Contraction and Convergence proposal and EcoEquity’s own Greenhouse Development Rights proposal rely, at least in part, on cap-and-allocate mechanisms. In the first case, a nation would be allocated emissions allowances in a way that is partially based on its population. In the second, it would be allocated reduction and adaptation obligations on the basis of its responsibility and capacity. In both cases there would be trading, but in neither case is trading really the point.
Which is my point. Trading is just a mechanism. It’s not a realist stance, it’s not an equity principle, and it’s certainly not a burden sharing architecture. As Jimmy Dale Gilmore might say (if he were a climate wonk): it’s just a wave, it’s not the water.