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Cap and Trade, plus International Offsets
Yesterday’s blog entry outlined the basics of a “cap and trade” system with respect to carbon emissions. At least in the short run, going “greener” under such a program will raise business and consumer costs and lower competitiveness. Electorates may soon be faced with having to make the decision about whether or not “cap and trade” is the best route to go and if its provisions will be worth it, especially when the alternative of doing nothing may well involve more serious damage to the world’s eco system. Uncertainty about (1) the extent of proposed “cap and trade” systems in the U.S. and Canada, (2) the “cap” levels that might be applied and (3) the per-tonne charge on carbon, will make investment decisions by utilities and businesses harder to reach over the near term. Furthermore, there is another aspect of usual “cap and trade” provisions that has even more implications for investment. This is the “international offset” component. Currently, the worst polluters in the world are emerging nations, with their coal-fired generating plants and huge industrial complexes. They were largely left out of the Kyoto Agreement on the grounds that the cumulative build-up of carbon in the atmosphere is the result of actions (industrial, automotive, etc.) undertaken by rich nations over many years. The Chinas and the Indias of the world make the case that they should be granted the right to raise the living standards of their citizens beyond subsistence levels before they need to comply with “green” notions, just as the developed world was allowed to do. They also make the point that they are providing the low cost labour necessary to make the cheap goods that are sold to developed nations. Hence, in a sense, they are undertaking pollution on behalf of such developed nations. In other words, they argue that such pollution is again, in effect, being caused by rich countries. In response, rich nations ask, “Who is getting the benefits of the jobs that are being created?” In recognition of the fact that emerging nations are causing the most pollution, “international offsets” are usually allowed under a “cap and trade” system. This is a program whereby a firm in a rich nation can spend investment dollars in an emerging nation that will reduce carbon emissions there, but have that applied against its excesses at home. There are a couple of benefits to this. It does go some ways towards addressing pollution problems where they are most severe, in emerging nations. Furthermore, it is also the case that a fixed amount of dollar spending is likely to cause more pollution-reduction in emerging nations than in North American or Asia. Firms in rich nations have already made significant technological adjustments to reduce their carbon emissions. However, there is also a big flaw in the plan. It encourages polluting firms in emerging nations to take no action. They know that they can get foreigners to pay for what needs to be done, in order to gain the offsets. In response to this, proposed legislation (such as the Lieberman-Warner “Cap and Trade” Bill before the U.S. Senate) includes a provision that “offsets” cannot be earned by investing in the operations of competitors in foreign countries. What is also apparent is that such investments take away from job creation at home. The Lieberman-Warner bill also suggests that a so-called “green tariff” be applied on imports from countries that are not demonstrating a serious enough intent to lower pollution. While “Lieberman-Warner” is not expected to see adoption, it may form the basis or prototype for future bills that will have a greater likelihood of passage. Alex Carrick Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Member Comments» View all comments (2 total comments)
06/25/2008 - posted by marcus
Correction to very last sentence: If you accept the lifestyle of someone else, you cannot ask to be treated differently.
06/25/2008 - posted by marcus
"The Chinas and the Indias of the world make the case that they should be granted the right to raise the living standards of their citizens beyond subsistence levels before they need to comply with ‘green’ notions, just as the developed world was allowed to do.” I believe this excuse from the East, as also stated elsewhere in countless other media on this subject, is the fundamental vantage point that defines what nations should be “going green” (under things like the Kyoto Protocol). I find a statement from these “developing” countries to be absurd. The “developed” world invented, created, … Read Other Recent Alex Carrick Posts11/10 - The Wise Old Rooster
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