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  • A Series of Analogies

    Posted by Ginny on May 11th, 2006 (All posts by )

    Iain Murray is critical of the EU’s emission trading scheme (ETS), framing it with an analogy that that may be especially clear to some Houstonians gazing at their retirements:

    It should also be mentioned that volatile markets are particularly prone to manipulation by the unscrupulous. Enron recognized the potential volatility of carbon markets when it lobbied hard for their introduction in the United States. Badly structured markets where transparency is lacking are to the rogue traders like pheromones in the insect world.


    One Response to “A Series of Analogies”

    1. Shannon Love Says:

      Emission credits for CO2 are an inherently flawed concept because there is no concrete link between person A emitting X kilograms of C02 and the cost Y that person B must pay to offset the supposed damage caused by the C02. Without this information, the price for emission credits will utterly arbitrary and will not provide any information to the market.

      A well designed market will accurately reflect the respective tradeoffs in different uses for the same resources. The price of land for example, conveys a great deal of information about the most efficient use that the land can be put to. Until we can accurately measure an economic tradeoff, whether positive, neutral or negative to C02 emissions, any attempt to attach a price to C02 emissions will end in failure.

      Needless to say, our scientific understanding of the cost of C02 emissions isn’t anywhere near that good.