The Corner

Re: Earth Day Notes

A commenter on my post yesterday about the Almanac of Environmental Trends asks a good question that comes up frequently, and deserves a good response:

Honestly, I am not a troll, and I think the Almanac is a great thing that deserves wide circulation, but I would like to understand from Mr. Hayward why it is that ITQ [tradeable quotas for fisheries] is good (p. 23) but cap and trade is bad (p. 105)? Are these not equivalent concepts?

This question is usually asked in a different form — why was cap-and-trade good for sulfur dioxide (many market-oriented folks pressed for emissions trading in sulfur dioxide in the 1990 Clean Air Act as an alternative to prescriptive regulation) but bad for carbon dioxide (which was the Waxman-Markey proposal)? After all, both chemical compounds end with “dioxide,” and are emitted by coal-fired power plants.

The similarity ends there, however. The main point is that cap-and-trade for sulfur dioxide imposed no constraint whatsoever on fuel use, whereas a cap-and-trade program for carbon dioxide only works by suppressing fuel use massively. Since 1990, we’ve continued to burn more coal, but power plants could reduce their SO2 emissions either through scrubbers (which turned out to be cheaper than anticipated), or by switching to low-sulfur coal from Wyoming. But there is no such thing as “low-carbon coal” to switch to, and the CO2 equivalent of SO2 “scrubbers” — carbon capture and sequestration — is orders of magnitude more expensive and therefore unrealistic. True, in the short run we could switch from coal to natural gas, but eventually as the CO2 cap comes down, even natural gas use would have to be suppressed.

This is why cap-and-trade for SO2 and CO2 is an apples-to-oranges comparison, but this simple point was lost on just about everyone.

The case of tradable quotas for fisheries is somewhere in between. The problem with collapsing ocean fisheries is the lack of property rights in the ocean, where the incentives are to catch the next fish before someone else does. “Cap and trade” for fish assigns property rights to catch the number of fish that will leave the fish population sustainable, but that cap would remain fixed, rather than perpetually declining like the caps for SO2 and CO2.

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