On 12/26/05, Michael Perelman <[EMAIL PROTECTED]> wrote: > Sort of good, but certainly Professor Bond could explain a bit about > carbon trading to Omerod. Also, why not better public transit to > reduce congestion or a better spatial mix between housing, work, & > commerce? > --
Right - if you don't mind my oversimplying a bit next bit there are all sorts of reasons tradable permits (or green taxation in general - tradable permits being essentially a form of green tax) are inefficient as a primary means of dealing emissions. You have to start with something widely understood - to the extent that emissions control does not consist of simply having a smaller economy, the least expensive method is effiiciency. Not that efficiency can handle 100% of demand - obviously you cannot do more and more with less and less until you get something for nothing - but it is always the first step, and primary means outweighing any other. But there are twin problems with market solutions to energy efficiency. Demand elasticity in response to increases in energy prices is (at least in the short run) low. And capital investment in energy efficiency tends to be low in response to price increases compared to what traditional supply/demand curves would suggest - which makes demand elasticity low in the long run too. What cause these things is widely disputed, but that they occur is not. That means that in practice energy efficiency behaves suspiciously like a public good - meaning that regulation and public works will supply it at a lower cost than market means. Yes, of course some sort of emissions trading or other green tax might be a useful final step for fine tuning, but only for that.
