cap and trade

Instance of growth

Once upon a time, I posted a livid entry regarding a cap and trade proposal for mercury emissions. I objected strenuously to using market forces to reduce such a harmful chemical. I still stand by that position, but only because of the nature of mercury. At the time, I thought cap and trade programs were inherently flawed.

Then I took economics and quantitative analysis, and read a lot more about how such policies work. And I learned about Coase and Pigou. While my extreme liberal roots would have me siding with Pigou (assess a tax to compensate the populace for negative externalities) because I used to think you should just regulate the hell out of the polluting bastards, my newfound understanding of incentives makes me more inclined to support a market-based approach. Mind you, not a voluntary market-based approach, but a situation for which there currently exists no market, to have one imposed upon it. That is how a cap and trade system works. It introduces scarcity into a situation before the scarcity is actually reflected in costs. Thus it builds in the social costs of production before the point at which actually paying the social costs becomes unavoidable.

In that light, I must say that I find the new global warming deal, reached yesterday afternoon, to be, in a word, awesome. To set a timeline for reducing greenhouse gases to 1990 levels in 20 years is both a reasonable and laudable goal.

You might think this is overzealous. That it will hurt California's economy, already bleeding businesses and jobs, if you ask some people. But I think it creates new market opportunities. Much like the way our stem cell initiative could boost state research and development investment. Someone's got to come up with renewable energy technologies. It might as well be us.