Opinion: Cap-and-trade can save the planet – By Andreas Kluth (Star Tribune) / Aug 29 2021
Especially if we include individual emissions in the system.
To mitigate a huge problem like climate change, we need to be open to big ideas. One of these has been around since the 1990s but may only now be ready for prime time: the issuance of tradable carbon allowances not only to companies (as in existing cap-and-trade systems) but to all of us individually.
In essence, this kind of flexible rationing follows the same logic whether applied upstream to industry, as in the European Union’s emissions-trading system, or downstream to every single consumer. Policymakers cap the overall amount of carbon to be emitted and reduce that over time. They then hand out free permits to emit the carbon, which people can buy or sell in the aftermarket.
Similar to carbon taxes, these certificates attach a visible price to emissions that are otherwise invisible and thus the cause of what economists call an externality, namely global warming. Unlike taxes, tradable permits allow more precise targeting of incentives. Those polluting less than their allotment can cash out and make extra money. Those needing more certificates have to pay up. Everybody will try to become more green.
The elegance of this mechanism is the freedom it leaves people to respond as they please. That’s why economic liberals like me have long favored cap-and-trade systems over other policies such as government subsidies for some technologies or bans on others. Markets generally work better than central planning, and can even be extended internationally.
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