One element of most warming-mitigation proposals is a “cap-and-trade” system, whereby carbon emissions are “capped” at a certain level and then “permits to emit” are traded on a commodities financial marketplace. One such system is, supposedly, the European Union ETS, which went on line in 2005.

These systems seem prone to failure. Here are some reasons to think so:

1. The system only works if there is rigorous enforcement. Any fudging or lax regulation will make the supposed commodity worthless.
2. The system only works, for greenhouse gases, if there is significant cross-border and ideally worldwide compliance. I know the UN and other negotiations are trying to make this a worldwide activity, but it is hard to imagine that multiple jurisdictions will be able to come together at the level of rigor necessary.
3. The system only works if caps are progressively tightened. Caps need to be tightened or there is no point in taking this approach to mitigating global warming. However, getting any cap rigorously enforced will be hard enough, and is unlikely.
4. The system only works if there is widespread agreement on how to measure. One interesting part of the carbon system is how “carbon sinks” are part of the EUETS system. Russia, for instance, gets huge numbers of credits for its forests. But there is also very little agreement on how to measure the carbon effect of a forest.
5. The system only works if the distribution of “permits to emit” are fair. But they are not. Most schemes take the status quo as the way to hand out permits — grandfathering, basically. This makes historical polluters, paradoxically, the biggest recipients of the permits. Currently in Europe (2006-7) there is a simmering scandal about “overallocating” permits — basically, handing out more permits than pollution! This caused prices to crash on the EUETS from 30 Euros per ton to less than 4 Euros from April 2006 to January 2007.  Not only does this grandfathering occur inside countries, but across countries.  If we were to cap all emissions now, does that mean that India, China, and other developing countries are capped at current levels, and that mega-polluter USA is capped at its current level as well?  What’s the fairness in that?  But if it isn’t fair, then what is the fair system?  Extraordinarily difficult to say.
6. The system only works if pollution from all major sources is considered. However, for example, airline travel and personal car travel, for two, are not yet considered in the EU. The EUETS applies only to large installations, such as power plants and factories. It isn’t that such consideration is impossible — just, the amount of time it would take for the system to become intelligible would simply be too long.
7. The system only works if India, China, and the USA are involved.

Guess I’m a pessimist. It would be interesting to relate these 7 reasons to the Stern Report’s recommendations, and see if he shows anything but blind hope that the world could actually implement a worthwhile system. If someone does that, let me know.