The CO2 Dilema

The U.S. thinks it is at a crossroads on how to reduce CO2 released into the atmosphere. There is only one road to take. Two be clear, there are currently two very different approaches used by governments:

• One, a tax on CO2 emitted into the air. This is the best way to go because it provides a clear price signal to the market, is less susceptible to market manipulations, and can be used as a revenue raiser to incentivize new emerging technologies that supplement fossil fuels.

• Two is a system called "Cap and Trade." But, this system DOES NOT WORK!
  

As reported in the Wall Street Journal, April 14, 2008, one of the pioneers in advancing a Cap and Trade system, is sinking. Cap and Trade is touted by the promoters of such a market-based approach as the only fair system. Not true as these are essentially permits to pollute, and result in a market where "anything goes."


In the real world, these trading schemes are difficult to audit and even harder to certify as legitimate. The permits are the equivalent of cash, creating fraudulent opportunities. Some promoters argue that we could emulate what has been labeled as a successful SOx trading scheme, but that is not true. CO2 is a pervasive bi-product of the economy and long-lived in the environment. The exposed European Union failures underscore the ability for market manipulation and shows what not to do.


No one wants to create a tax since this is a repeat of the infamous "Btu tax" of the early 90's, when the nation watched one major party lose control of Congress as the result of energy tax. If we do not create a CO2 tax it would be best to just do nothing, as opposed to crafting legislation that will just lead to manipulation and another future government bailout of these buyers of fradulent permits. These would not be unintended consequences because everyone is aware of the pittfalls. It is another chance to game the system like we did with the savings and loan crises in the early 90's which blossomed into the currenet sub-prime loan crises, still unraveling today. Leave the CO2 issue alone if you cannot put a tax on carbon.