The Case Against Cap in Trade

[Professor S]

Cap in Trade is a policy that puts a set limit on the amount of carbon/pollution that an industry can produce and put value on those limits, carbon credits can be sold from one company to another so a polluter can purchase the right to produce their pollutants. In theory, this encourages companies to produce less pollution so they can sell whatever credits they don't use, and discourages polluters by forcing them to purchase the unused credits from non-polluters. This all sounds very well and good, but there is a huge problem:

Not all businesses inherently produce equal amounts of carbon.

The greatest example of this is electrical power compared to the production of electronics. 50% of all our electricity is produced by burning coal, a fuel that is notoriously dirty. When compared to power producers, the electronics industry barely produces any pollution at all.

Even if coal powered plants were to adopt clean coal technology or to convert to less dirty deisel/petroleum power, it would cost them millions if not billions to do so, so the cost effective alternative is to purchase carbon credits from non-polluters.

In the end, non-polluters aren't polluting any more or less than usual, polluters aren't polluting any more or less, but instead he consumer is left holding the bag as the added cost of purchasing the credits will likely be transferred to them... and to top it all off the intended effect of decreasing pollution is never achieved.

The only winner in this equation are industries that are histrically non-polluters by the nature of what they produce... and the government who will for the first time ever have invented a product that companies must trade... and that the government can then TAX (which I think is the whole point of it all).

Thoughts? Using this model as a base, what would you change to make Cap in Trade work? My first thing would be to make the credits tax free and create realistic goal moels base on type of industry and not simply a flat limit regardless of industry.