Emissions Trading and Feed-In Tariffs: Do We Need Both?

When I started this blog some 3.5 years ago, the focus was on climate issues, particularly climate economics. More recently, however, I have neglected this topic a little. Fortunately, working at a research institute gives one the opportunity to learn a lot about things other scientists do–e.g., regarding the quite popular question whether the EU needs both emissions reduction and renewable energy deployment targets such as the 20-20-20 target. In other words: do we need an energy mix consisting, e.g., of emissions trading and feed-in tariff schemes? Or is emissions trading enough to reach policy goals? And, by the way, what are these goals?

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A Demographic Cap and Trade

Some time ago I mentioned the concept of tradeable birth licences proposed by Kenneth Boulding in the 60’s. One must recognize that population growth, especially in the developing world, is a serious problem. We are facing a kind of a Malthusian situation – there are ever more people in the world without us having the possibility to extend agricultural production meaningfully. Furthermore, this time (unlike in the beginning of the 19th century, when Thomas Malthus lived), agriculture is not the only limiting factor. The stresses we impose over the Earth’s ecosystems generally become ever larger und more severe. And this despite the fact that there are millions of people living in such poverty that their influence on the environment is almost negligible! So maybe the time is ripe to think about population control.

Climate Justice

I would like to recommend a post written by James Boyce from the TripleCrisis blog – “The Climate Justice Imperative”. Though Boyce writes about the US, I think that his recommendations are generalizable for all developed countries. In his text he points out that there are four pillars that make climate justice critical:

Sustainability and Population Control

For the time being, the world population is approaching the level of 7 billion people (it probably will reach it this year). According to UN estimates, by the middle of the century there will be 9 billion people out there. Since we are already heavily pressing against the Earth’s carrying capacity limits, it is obvious that 2 billion more of us won’t alleviate the pressure – quite the opposite is to be expected. Thus it seems clear that a sustainable world economy require a constraint of the population growth (and, indeed, its reversal). Thus a group of scientists calling for a sustainable (or steady-state) economy – notably the economist Herman Daly – is calling for a form of population control to achieve this.

Cap and Don’t Trade

A few weeks ago I shortly presented the cap-and-dividend proposal by US Senators Maria Cantwell and Susan Collins. While reading this article at TripleCrisis (actually on the broader issue of the “ownership” of natural environment) I realized that I somewhat misinterpreted the idea of cap and dividend.

While I thought that it includes a trade component – in reality it doesn’t. That imposes the question: is this good, bad, or maybe equal?

Cap and Dividend

A few days ago I wrote a rather short post about the EU ETS (Emissions Trading System). It was a praise of the general idea of cap and trade schemes (and the EU’s one as a good example), although I mentioned two challenges remaining: inclusion of all industrial sectors in the scheme and agreement on a global system of interlinked national cap and trade schemes. But there is one more adding proposal worth mentioning: the so called “cap and dividend”.

The Good Example of ETS

One of the most intensively discussed subjects in the economics of climate change is the question of what is the best way of pricing carbon. The most common (and the only one that has been implemented so far) proposal is cap and trade. The idea is simple: constrain the amount of emissions permitted and let market agents decide whether they want to buy permissions or invest in technologies causing less emissions instead.

Tax the Coal and Subsidize the Solar?

Jeffrey Sachs has written an article being a proposal for an alternative to cap and trade (i.e., emissions trading). For I just recommended a blog entry about the probable failure of a global cap-and-trade system, it is an idea worth considering.