Emissions permits for new entrants

2009-04-28

in Economics, Law, Politics, The environment

One proposed element for a cap-and-trade system is holding back some permits for ‘new entrants.’ Basically, this would mean preemptively grandfathering emissions from certain types of new facilities. Depending on how it was done, it seems like it could be either environmentally beneficial or harmful. If the overall cap for any year is set below the level of emissions last year, on a downward trajectory compatible with stabilizing concentrations at a safe level, reserving some credits for new entrants would force other firms to bid for fewer permits, raising prices and increasing the number of mitigation activities that are worth undertaking. Conversely, if this is used as an excuse to increase the cap, it might impede the transition to a low-carbon future.

There is also the issue of complexity. It seems likely that special treatment for new entrants will lead to weird Enron-style accounting trickery. The more complicated a carbon pricing scheme becomes, the easier it is to do hidden favours, and the harder it is to transparently assess what is going on.

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{ 1 comment… read it below or add one }

R.K. April 29, 2009 at 1:27 pm

100% auctioning really is the sensible and equitable approach. When it comes to sectors where firms would relocate rather than pay, either border measures or temporary refunds could be used, until such a time as most global producers are covered by carbon pricing schemes.

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