Tuesday, December 21, 2004

Proper Emissions Trading Markets

This week, the high-powered Becker-Posner Blog tackles global warming. Posner writes:
However, subsidies would be necessary for technologies that would have no market, such as technologies for removing carbon dioxide from the atmosphere. There would be no private demand for such technologies because, in contrast to ones that reduce emissions, technologies that remove already emitted carbon dioxide from the atmosphere would not reduce any emitterÂ’s tax burden.
It doesn't have to be this way. As I wrote in a paper earlier this year, emissions credits should come from actual absorptive capabilities, not created ex nihilo, and awarded to the owners of those capabilities. Some, such as the oceans, have no definite owners; these credits can belong to neutral bodies. Rainforest have owners, who would receive a valuable commodity in return for preserving the rainforests. So would the owners of machines that sequester carbon dioxide. Emitters would have to buy emissions credits from these sources, incentivizing them to be more efficient. The high price of credits would incentivize protection and restoration of rainforest and investments in new technology.


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