in commenting about cap and trade on my facebook the other day, i posed a simple question wondering what exactly the end result of such a program would be- carbon reduction or capital market bubble creation?
my friend mike replied:
"Cap and Trade is a good concept, but can it work in the real world? who decides the total carbon amount? Who is grandfathered in? It is an incentive to reduce your carbon usage through technology by increasing the monetary compensation. Carbon commodity trading!! Will the government or free market control it?"
monetary compensation as an incentive to modify behavior? like giving my kid an allowance to clean her room?
so i thought i'd have a little fun with this one... my commentary:
i hear what you're saying mike; i suppose there are two ways to accomplish compliance- incentive or penalty.
for instance, speeding and other laws are enforced through penalty. but if we were to follow the logic of modifying behavior through monetary compensation... how about simply paying drivers not to speed?
of course, this would never happen in our world because speed limits are designed for public safety, right?
actually, i'd argue we've allowed speeding to be turned into a municipal revenue generating monster!
so following the logic any good "small-government/free open market/damn the public good/get mine now" proponent would employ... we should be wondering why cities and states get all the money from speeding!?
ok, just for fun, lets dive into this speeding thing...
why not open it up, and create a "street and driving market"? just like cap and trade will issue the original "permits" to polluters for free, simply issue all drivers permits to go fast! maybe all drivers should be allowed "x" number of speeding credits (the mechanics of this are unimportant for the current discussion; lets just say every driver gets "some").
this way the people who don't want/need to speed- even though they now have the right to speed because of the way the system is set up- can sell/trade their permits to others who want/need to go fast. the market pays them not to speed!
in turn, the "speeders" are in essence "pre-paying" the ability to go faster than posted limits.
and the seller of the permit, having been paid not to speed, won't speed because they no longer have the permit to do so... right?
come on... who's to say they won't speed at sometime in the future? do they go back to the market and buy a permit when they need to speed? and if they speed without a permit, who's to say they will actually get caught and be made to pay a penalty! do we need more speed traps and gestapo-like policing? or do we just trust people to do the right thing?
lets go one step further, and put the middle-man in place here; the broker of speeding permits. this guy matches speeders and non-speeders... for a fee. ah... economic growth!
how about this one... permits to kill people! we already permit for fishing and hunting wild animals to control population and generate revenue, why not permit human murder?
now you're speeding (because you have a permit), get in a wreck and kill someone... ok, simply use your speeding and murder credits to get out of it!
or maybe you truly hate someone, or are just really pissed off... buy a permit to knock-em off!
maybe you don't have the stomach for killing, so you SELL your permit to a professional assassin and have them do the dirty work. and lets say professional assassins buy up a bunch of killing credits. now they can legally operate their business! ah... more economic growth!
simply make it legal and generate revenue from it, rather than having it be illegal, and a financial burden on tax payers paying for prisons?
i can see all kinds of ways to make money on this thing; now the market supports brokers who specialize in bundling groups of assassins for, i don't know... hire by governments? special, military contractors? oh wait, we already have this!
of course, this is all absurd (or is it?)
if you really stop to think about it, aren't some things just too important for the common welfare? isn't our human health/well being too precious to allow it to be compromised by "permiting" something harmful, especially through profit seeking activity?
just like speed limits, carbon and other pollution regulations are designed for public safety (health and environment).
we don't get paid to drive the speed limit... why should there be a monetary incentive to do the right thing with pollution?
because it cuts into profits?
you see where i'm going with this. free markets and unregulated capitalism have limits on their ability to benefit the common welfare.
at some point, they become counter productive, reckless, bubble making implosion machines. and this typically happens at the detriment of society as a whole while benefiting a very select few. in other words, something/someone suffers great inequality or destruction.
examples of this go on and on: extinction of species, depletion of resources, loss of human life/quality of life, and greater spreads between socioeconomic status.
the bottom line... just because something can become a market, doesn't necessarily mean it should become a market.
therefore we use penalties- financial and physical (fines, fees, tariffs, surcharges, taxes, incarceration... and even death) for keeping things in check.
now lets look at cap and trade again...
just because a polluter no longer has enough credits to pollute, how do we know they won't continue to pollute?
just look at how enron was able to cook the books with off-balance sheet accounting! someone, somewhere is going to figure out a way to skirt the system, keep the "real" measure of emissions off the books, and be able to pollute/profit.
maybe they get caught, maybe not.
IN THE MEAN TIME... "WE" (THE PEOPLE OF THE WORLD) SUFFER ENVIRONMENTAL DAMAGE INCLUDING HEALTH ISSUES... LEADING TO MEDICAL PROBLEMS... LEADING TO INCREASED MEDICAL COSTS... LEADING TO DENIAL OF CLAIMS... LEADING TO LOWER QUALITY OF LIFE... LEADING TO MEDICAL INSURANCE PROFITS... LEADING TO GREATER DIFFERENCES IN SOCIOECONOMIC STATUS... LEADING TO UNIMAGINABLE HUMAN SUFFERING, IMBALANCE AND INEQUALITY.
is this the world you want to live in?
THE BIGGEST EMITTERS OF CARBON EMISSIONS ARE LOCAL, STATE AND FEDERAL GOVERNMENT INCLUDING THE MILITARY.
are these guys EXEMPT? or do they need carbon permits too? and if they have extra (print up a few more because they can!), should they be able to "sell" them on the open market?
if so, do these revenues REPLACE OR REDUCE some taxes, or become an additional "tax" on the people? or maybe the revenues are used to reduce the national debt or deficit?
or does this government activity in open markets actually aggravate the ability of markets to work freely, thus creating more of a bubble (just like fannie mae and freddie mac aggravated the housing bubble!)?
these are the tough questions and considerations we MUST address going forward in our global economy, global governance and global stewardship.
without dealing with these things, we are destined to repeat the failings every society from the beginning of time has eventually suffered... only worse, i fear.
all i know is cap and trade is a bad idea. anytime you put a for-profit motive above the common welfare, the welfare will suffer. period. peace.