As the Senate turns to an energy/cap and trade/tax bill to reduce GHG emissions, the pundits are turning to the question of whether cap and trade (a) will be enacted and/or (b) reduce GHGs. The Huffington Post’s Robert Stavins links the demise of cap and trade to the failing economy, to an endemic lack of faith in markets, and to the fact that cap and trade was the leading proposal to limit and reduce greenhouse gas emissions. In other words, cap and trade has been attacked by Republicans and coal-state Democrats because it was supported by the everyone else.
The problem with this is that not “everyone else” supports cap and trade. For example, Annie Leonard launches a hyperbolic attack on cap and trade (e.g. cap and "giveaway" was designed by Enron alumni and Goldman Sachs, and is akin to the pyramid scheme of Bernie Madoff), and misinformation about how markets actually work . According to Leonard, cap and trade is bad, can never work and will be abused by big business to make money and continue to pollute.
Leonard is not entirely wrong. Improper cap and trade programs accomplish nothing. However, Leonard substitutes invective for analysis. Her solution is to slap carbon fees on “polluters” – neglecting to mention that these “fees” will be paid by consumers – and then sending the money overseas to pay our "ecological debt." Her approach calls for severe regulation, which even she admits will be "painful," to reduce emissions.
A recent MIT report, offhandedly and wrongly cited by Leonard, demonstrates the fallacy of her approach by concluding proper cap and trade systems can reduce GHGs without significant economic impact. MIT assumes free allocations of allowances might be necessary at the outset, but that allowances will be auctioned as the system matures. Further, allowances must be created based upon realistic expectations for manufacturing and energy production. Overestimating the need will result in no incentive to reduce emissions, or worse, the misuse of unused allowances, as in Hungary. Underestimating need, on the other hand, will result in skyrocketing prices and in fact tank the economy as critics warn.