Really, Really, Really Bad Ideas: Carbon Trading Edition

Unfortunately, it's hit the big time, with Fortune Magazine declaring that it has hit "the big time", so it appears that much like new math, new Coke, sequels the Rocky, mortgage backed securities, and Astroturf, we will be seeing a lot of this.

The idea is that the government issues a limited number of carbon credits, basically permission to emit a certain amount of carbon dioxide into the atmosphere, and since there are fewer credits issued than would be actually needed, a "robust market" would be established where, because they can make money on these markets, carbon emitters would, through the magic of the profit motive, cut emissions.

You see, this market, with its highly compensated traders, and the complex investment vehicles that come with them, constitutes an unparalleled opportunity to create innovation.

Well, that's the first problem. That's what Alan Greenspan said about mortgage backed securities and credit default swaps, but it's supposed to work just fine with combating global warming.

The second problem is that any regime for this is going to be difficult. You have to decide how many credits are issued, and who issues them, and how to regulate the market so you don't have a lone trader bankrupting a multi-billion dollar company.

The most basic problem however, is that this is a tax on carbon.

Because your goal is to reduce carbon emissions, the number of credits issued must necessarily be lower than what the market really wants, at least a bit, which costs every business participating in it.

Only this tax goes to the polluters, at least the ones who manage to improve efficiencies or game the system by getting excess credits, and to the Bear Stearns types, who would leverage one of my farts if they could find a way.

If you are going to put a tax on pollution, then just tax that pollution, and let the government collect the monies, as opposed to the polluters and their parasites, and spend it on something other than multi million dollar executive compensation.