Cap and Trade and Non-Tradeable Emissions

Tom Bozzo

thinks the path of Chinese energy and climate policies is interesting but the prospect of international trade creating a game of carbon whack-a-mole is not a great argument for the ex ante unworkability of a U.S. cap-and-trade program. Take a look at the sectoral distribution of U.S. emissions, via the EIA:

The industrial sector accounts to 27 percent of U.S. emissions, and the especially hard-to-offshore residential and transportation sectors generate 54 percent of U.S. energy-related CO2. It also just so happens that the residential and transportation sectors are ripe with low-hanging fruit for emissions reduction — i.e., reduction opportunities that can be carried out at essentially no cost (*) via reductions funded with energy savings. The emissions reductions from picking the low-hanging fruit in the U.S. economy may be offset in whole or in part by Chinese emissions, but that need not be futile in the sense that the U.S. domestic reductions would cause China or similarly situated countries to emit more given their development paths.

What’s especially interesting about China is that their current resistance to emissions reductions has to be viewed in light of the sustainability of their current emissions path. China has relatively large coal reserves but also very high production rates, so rapid in fact that today’s Chinese infant can look forward to depletion of their domestic coal resource before s/he hits middle age. This points to a direction for resolution of the current tension between belching-smokestack China, imposing external costs on Minnesota fisherpeople, and futuristic greener China. Perhaps they will delay the reckoning by endeavoring to make coal exporters fantastically rich (at least until climate reckoning day), but it looks like Stein’s Law will bind and I might even get lucky and see it happen.

(*) That in turn points to something (for later discussion) that’s wrong with this Tax Foundation article on the implicit tax burden of cap-and-trade, which in fairness I should note gets an impressionistic picture of the distributional consequences more-or-less right.