For example, consider investment in clean electricity: This investment can be encouraged by pushing the price of dirty electricity high enough to justify investment in clean electricity. The problem here is that there will be a sudden, potentially destabilizing jump in the average price of electricity before investment starts. By contrast, if the price of dirty electricity is left unchanged and investment is encouraged by negotiating price and sales guarantees for clean electricity, the average price will only ramp up slowly as the percentage of clean electricity increases – A FAR BETTER OUTCOME that will cost consumers less while giving investors much more certainity than a price on carbon set by a volatile market.

Other strategies may be more appropriate for different industries. Regulations, subsidies, offset credit trading etc. may be the best option in these cases.

Before Waxman-Markey is passed, the desirablility of dealing with some major sources of emissions outside of any cap and trade system should be seriously considered. Artificial price increases and capacity restraints should be the last option considered.

Something that has been completely overlooked in every critique of the bill has been the importance of GLOBAL reduction of GHG emissions. Until this point, the US has made no commitment to capping or lowering GHG emissions. It is important to keep in mind that with ANY legislation in place that caps those emissions, we are better off than we are currently.

As for the offsets, these credits are generated by reducing GHG emissions somewhere else in the world – thus the net effect on global GHG emissions is the same (assuming the credits are derived in a robust way; and as Justin commented above, the process is quite rigorous but of course, not perfect). So from a purely scientific point of view, global ppm are still the same, regardless of where the reduction is being made.

Furthermore, the CDM and other international offsetting mechanisms can have an exponential effect on reducing GHG emissions into the future. Since the credits under the CDM are derived in countries that aren’t regulated by the Kyoto protocol, any “clean development” replaces development that could have otherwise occurred in a climate-harmful way (think about installing scrubbers at a coal plant in China – that counts, and would not happen without a mechanism like the CDM). It encourages the transfer of technology, knowledge and human resources to countries that are not financially able to develop these things independently, improving these countries’ ability to adapt to climate change and contribute to future global agreements on climate change.

Many people’s critiques of the CDM are lodged in the fact that offsets seem to go against the “spirit of the law” – capped countries should have to reduce their emissions, period. However, this is often not the most efficient way to reduce global emissions, nor is it the most globally beneficial way to reduce emissions.

I encourage people to consider the global benefits to a rigorous international offset market, the powerful impact of knowledge and technology transfer between developed and developing countries, and consider the fact that right now, the US has absolutely ZERO requirement to engage in GHG reductions of any sort.

I oppose a carbon tax — in fact, the NYT recently published a letter to the editor I wrote explaining why they were wrong to endorse a carbon tax.

As for whether people and institutions behave as rational agents, it’s not my assumption — in the last 10 years, 3 of the nobel prizes in economics went to people demonstrating why the assumption was wrong and or how it undermines economic assumptions.

This has important implications for climate policy and law, and for the design of a cap and trade system. Those who point to the success of the sulfur cap and trade need to study how and wy it succeeded — there were several factors, such as changes in freight law that made transporting coal cheeper and the availibility of low sulfur coal. Such a confluence can be there for low carbon fuels, but only if we’re smart enough to include policies that make their costs low.

Big enough to frighten them away, methinks.

However, one point is that it isn’t necessarily true that domestic offset markets will be of higher quality than CDM from a climate perspective. The CDM market, for all it’s faults, is a very rigorous process. It remains to be seen how the EPA will approach this market, especially if agricultural soil sequestration projects are included.

energy efficiency
conservation
biomass cofiring
and fuel switching from coal to gas

that give us a chance of stabilizing at 450ppm or less. I look forward to the promised forthcoming article showing your math.

The implicit assumption in your analysis is that utilities and large generators will behave rationally, choosing lower cost clean energy options over offsets.

I hope you are right, but history is chock full of examples where utilites chose suboptimal strategies; technological lock-in is a powerful force.

But the target is a big concern — 17% below 2005 by 2020 is one reason I gave it a C. I believe caps need to be front end loaded to avoid triggering self-amplifying feedbacks. It really doesn’t matter how ambitious the goals for cutting anthropogenic emissions are in the outyears if we’ve started a precess which would inevitably and irrevocably unleash 3000 gigatons of “natural” methane from the Arctic permafrost in a self reinforcing feedback in the near term. If we start this phenomena, we could set 0 carbon by 2030 and it would make little or no difference. And methane levels have been up for the last 2 years, and sattelite data shows its origin is the Arctic. Bad news.

[JR: I gave it a B- so I don't see a big difference there.

I have never oversold the likelihood that this bill will avoid catastrophic global warming. I have merely argued that failure to pass this bill (hopefully after it is strengthened) reduces the small chance of doing so to zero.]

Targeting only a 17% reduction of CO2 emissions for 2005 levels by 2020 just ain’t gonna cut it. Nor is giving away more than 50% of the allowances for free. As was pointed out, 50-50 is the very definition of compromise. Giving away 85% is a bad joke that guts the program of any real teeth.

[JR: Just to be clear, lots of the allowances are given away to very worthy causes. And we gave away 97% of the sulfur allowances under the clean air act. But if you have a fundamental problem with giving away so many allowances to regulated utilities, which I don't, then you certainly aren't going to like this bill. But from an economic standpoint, giving away allowances doesn't gut the program of any teeth, much as it didn't for the clean air act.]