Market mechanisms for emissions trading full of holes
Although better than the Bush plan of doing nothing, the Kyoto Protocol has its share of problems. The European Union in particular has relied on market mechanisms to achieve the goal of holding carbon emissions to 1990 levels by 2012. The plan works like this: Governments and Treaties set the level of emissions allowed by a region. Government bureaucrats then divide up this level of emissions into “emissions allowances” for individual emitters. That emitter then has the ability to emit to its full allowance, or cut emissions below its allowance and sell its remaining allowances on the open market. A coal plant may, for example, be given allowance to cover only its current level of emissions. If it wants to increase production, it needs to either purchase more allowances from another emitter or find ways to increase production with fewer emissions. To accommodate this trading, exchanges have sprung up to broker emissions allowances. However, some bureaucrats have demonstrated in this space their woeful lack of understanding of how markets work.
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