You’ve got “bugs” on the .org connection.

The success of an ETS depends on a transparent market and the ability to pass through the costs to consumers. By doing this, the more GHG efficient industries become more cost competitive and consumer demand for cheaper products will drive investment in the lower GHG intensive industries. Free permits to big emitters stuffs up this. This is the crux of the first criticism by the economists and one I fully agree with. The problem therefore isn’t with a cap and trade system, but rather the design of this one. A well designed cap and trade scheme will provide the same price signals for investment that a carbon tax will.

The argument that because it lowers the permit price and reduces the margianl abatement cost of a polluter we should be happy about it all the same is bizarre. Its like saying that if you donated money to a charity only to learn that for every dollar you donated a company would donate a dollar less you shouldnt be worried because it helps increase the comapnies profit.

Why should individuals donate cheaper permits to companies? and why does the government continue to suggest individuals can make a differnce?

Thats the moral case for fixing the scheme or scrapping it, but lets consider the economci case. If altruistic individuals are willing to make an extra effort why would we want to discourage them by making their efforts pointless? More formally, if someone is wiling to pay for a public good, why not encourage rather than prevent them?

Finally, its much simpler to fix this problem than most people seem to fix. For example, when the Rudd Government announced it was spending $4billion on insualtion it said that would save 49 million tonnes of emissions. Of course, waht they meant to say was that it wouldnt reduce emissions by a single kilogram as thats the CPRS works.

But, it would be easy to reduce the 2020 target in the white paper by the amount of emissions saved as a result of theinsualtion package. simple and efficient, and fair as well.

People really need to take the time to wade through this stuff; otherwise it’s all gonna come down to an eventual shitfight between the Bolts of the world & the confused & disinterested billions of others.

Cap and trade ETS schemes have been advocated and discussed for over 10 years now. It has with stood pretty solid criticism over that period. The EU scheme has been operating for about 5 years. The EU scheme (initially) failed because the Government was conned by the emitters to an extent by the emitters overestimating their emissions, resulting in a surplus of credits. Up until this surplus became apparent, it worked quite well, as did the derivative futures market. I doubt that the CPRS will be revealed as a con but I do think the free allocation of permits to industry demonstrates that the Government is being conned by industry as to their financial exposure (but I don’t think that’s what you were asserting).

As you say though, if you hadn’t made the comments, I wouldn’t have explained why it was wrong. Hopefully my comments have helped to inform you, at least a little.

Apologies, I meant managed funds and not hedge funds although the same comments apply to both.

Now if these carbon credits are not going to “grow” in value, then what is the point of a business dropping their emissions?

Because for every tonne of CO2 emitted, the entity will need to hold and acquit a permit. A permit is essentially just a licence to emit a certain amount of GHG. If they don’t have the licence, they will be fined (probably heaviliy) In this way the need to hold a permit is equivalent to a carbon tax. The company will reduce emissions to reduce the number of permits it needs to buy. If the cost of reducing emissions is less than the cost of a permit, the company will reduce emissions until the marginal cost of abatement equals the cost of the permit.

Your comment just illustrates what I was saying about criticising the scheme without understanding how it works. If you had understood the scheme, you wouldn’t have speculated that managed funds etc would delve into the permit market.

Why would you buy credits for use in a hedge fund? Yes this would increase demand and artificially raise the price but ultimately you have to sell them to an emitter to realise any return and when you start doing this, this supply counters the previous demand spike. In other words, the value of the permits is higher while the fund holds them but they are not generating any income for the fund while this occurs and when they are sold, the artificual demand is removed and the price crashes meaning the fund would never make any money from the trade. At most, a hedge fund doing this would simply be acting as a bank or retailer for the permits. If you understood how a cap and trade system worked you wouldn’t be making dumb specualtive comments like this.