Now, cap and trade, or emissions trading, on the other hand, allows for the gradual introduction of an ever lowering limit on the amount of allowable emissions. This amount, called an allowance, is appplied across a sector. The aim is for the sector, rather than individual emitters, to meet the target emission reduction. Those that reduce below the cap can sell their “excess allowances” to those emitters that cannot reduce to the cap. To some emitters this could make good business sense while they make their own adjustments to new technologies or processes over time and accoring to their own business planning.

Mr. Sodhi misunderstands the cap and trade approach at this point. The government does NOT set a price on permits to pollute. Rather a market, with a trading platform, sets a price on the excess allowances (ie those amounts from an emitter below the cap). An emitter can only sell excess allowances. Mr. Sodhi suggests emitters can sell any of their permits. They cannot.

Mr Sodhi also states that the government would collect tax revenues from the sale of permits. Not true again. The trading administration, which might not be a government entity, may or may not auction the allowances. Its not a tax. Current legislation calls for a gradual phasing in of allowance auctioning. Many economists (cf. Stavins) show that it does not matter much whether allowances are auctioned or not. Indeed the current SOx allowances are auctioned as part of the twenty year old emission trading scheme already in place. But an effective mechanism does not have to have allowance auctioning.

The next part of Mr Sodhi’s logic is hard to follow. He claims that with cap and trade the government would decide what fuels replace fossil fuels, and argues that the government is ill-equiped to make that judgement. But later he suggests government should do that very thing when it decides what research to fund or what tax breaks to give to a range of new technologies. The fact of the matter is that the revenues from the allowance auctioning would do just what Mr. Sodhi wants — they are normally used to invest in technology R and D. And it is important to note that the technology R and D is NOT focused on types of fuels or the fuel mix, but rather across the board on a range of technologies, some of which are focused on energy production but also on energy efficiency and other areas as well. Thus the auction receipts do indeed go directly to a range of engineers and scientists just like he wants them to be distributed.

Lastly it is difficult to understand his concept of tax breaks for green energy companies. In this new and emerging field of what is called Clean Tech, most companies are looking for investments, not tax breaks. In fact start up companies in new fields like this are usually running in the red. They have no tax liabilities. What they need is start up or mezzanine level investments. Thats why revenues from allowance auctioning is more important to stimulating new investments and tax breaks are a thing of the past. The cap and trade system boot-straps investments in the private sector and green jobs.

Mr Sodhi also discounts the cost of climate change. He forgets that there is a cost to inaction. Its clear to many of us that these costs are far more damaging than the minor costs of mitigation, and indeed mitigation brings considerable opportunities. He makes the case that studies show that cap and trade will cost consumers thousands of dollars based on results from an MIT study. That is not true.

This thousands of dollars cost per household is something that has been widely touted by the GOP but has been refuted by the MIT study authors themselves. Indeed Politifact, declared the GOP figure of $3,100 per household was a “Pants on Fire” falsehood. The GOP claim is “just wrong,” MIT professor John Reilly told Politifact. “It’s wrong in so many ways it’s hard to begin.” A more accurate estimate has been produced by the CBO and EPA and suggests something on the oder of $150 per household.

I find the tendency for members of the university community to resort to ideological and political rhetoric rather than critical rigor discouraging. Too many people want to make this issue a red-state/blue-state battle. And some, I fear want to use the climate issue as a means to reverse the election. Please lets here in the academy resort to reason instead.

The US has been using a cap and trade system for SOx and NOx mitigation under the Clean Air Act regulation for 20 years. It is a market-oriented pollution control mechanism that has been proven to reduced the cost of abatement by 2 orders of magnitude over any other alternative means. Dont take my word for it, read the economists, such as Sandor or Stavins.

I get the strong sense that Mr. Sodhi wants to make this issue into a polemical red state – blue state rant rather than an informed discussion, and I sense that he believes his is the proper position to take by any self-respecting red-stater. Thus, it is ironic that he fails to know that Cap-and-Trade was first devised and implemented by the Reagan Administration, developed by one of President Reagan’s chief advisors, Boyden Gray in the 1980s. At that time the term of art was “emissions trading,” which is still the proper term for this approach. And even then some people called it “morally bankrupt” or even “a license to kill.” But Reagan was correct and it has worked extremely well since then.