Posted by: Matthew Hoffmann | April 28, 2010

Is Cap and Trade on the way out?

Cap and trade has been taking a series of hits lately.  In the US Senate, the much anticipated Kerry-Graham proposed legislation is on hold (and it included a modified cap and trade program by all accounts), raising doubt about whether a federal cap and trade system will be forthcoming.  Australia announced that its cap and trade initiative will be delayed until at least 2013 because the government could not obtain legislative approval.  Even the Western Climate Initiative, looked on as a bright spot in North American climate policy, has suffered setbacks.  Arizona withdrew from the cap and trade program a couple months back and Utah announced today that it was doing the same.

Does this activity imply that cap and trade is being delegitimated?  Are we seeing the demise of this market mechanism? I’m a bit reluctant to call this the end of cap and trade, or even the beginning of the end. My take on these recent troubles for carbon markets is that they demonstrate the difficulty in doing anything serious on climate change right now. In Australia, while cap and trade was the policy targeted, the deeper motivation for opposition was to delay climate action of any kind. While the Green Party did object to cap and trade itself, the bigger obstacle arose because the opposition party elected a climate skeptic as its leader (the Guardian has a nice article on the delay).The cap and trade program is what was delayed, but the opposition was to serious action on climate change. Similarly in the US, the troubles that the Kerry-Graham proposal are having have little to do with the market mechanism (as far as I understand the gist of the Kerry-Graham proposal it essentially includes a form of cap and trade by another name) and more to do with the broader political context–one that is toxic right now for doing anything on climate change at the national level in the US.

Utah’s withdrawal from the cap and trade aspect of the Western Climate Initiative could be read as evidence of a cap and trade backlash, because Utah remained a member of the Western Climate Initiative.  But again, the real opposition seems to be about climate action, not cap and trade. In February, the Utah legislature urged the Governor to withdraw from the Western Climate Initiative because it questioned the validity of climate science.

So cap and trade is being targeted now, but perhaps not because of the nature of cap and trade or any real opposition to this specific mechanism for addressing climate change.  Instead, it is being targeted because it is the policy option that has been widely chosen and has had the most momentum.  If the US Senate decides to move on climate change and if Australia comes back to doing something, my guess is that they will pick up the market mechanisms again just where they left them.

This is cold comfort.  I would much rather that the opposition was to cap and trade as a mechanism rather than to the idea of moving strongly forward on addressing climate change.

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