I am planning on writing an article against cap and trade and the carbon tax. One point is that these are not market-based solutions, but government-based solutions. However, the way Mises describes it, cap and trade and the carbon tax would still be market based, just with intervention: http://mises.org/humanaction/chap27sec2.asp How do you see it? Is any action by the state that creates a market still truly a market? Or is it central planning in disguise?
i would draw a line between “market solutions” and “market-based solutions”.
cap and trade is clearly a government policy (no businesses would trade emissions permits if the government didn’t cap emissions), so there is some extent of centralized decision making still involved (primarily, deciding where to set the cap). but the cap-and-trade approach does utilize market mechanism to ensure a more efficient implementation of the regulation (those who reduce emissions are those who can do it at least cost). so even though it is not a “market solution” in a strict sense that it is wholely decentralized, i was say it is certainly “market based” (maybe market-esque?)
to put it in perspective, if we don’t go with cap-and-trade (or even less likely a carbon tax), the EPA is legally required to begin regulating GHGs under the clean air act. and the only way the EPA has to do that it is through traditional command and control regulations. typically that means technical requirements (things like requiring gas cans to include a cap to avoid fumes from escaping into the atmosphere).
PS* really the whole market/non-market/central planning language gets confusing in this context i think. why not just talk about decision making on degree decentralization? on one end, command and control regulation is totally centralized. on the other end, you have total decentralization (and whether that will generate a “solution” or not depends on who you ask). and somewhere in the middle you have cap-and-trade.
I agree, the terminology used to distinguish these ideas are quite taxing. I do like your suggestion of the term market-esque rather than market-based. It seems a little more accurate and less prone to confusion of how a market truly functions.
“cap and trade is clearly a government policy (no businesses would trade emissions permits if the government didn’t cap emissions), so there is some extent of centralized decision making still involved (primarily, deciding where to set the cap). but the cap-and-trade approach does utilize market mechanism to ensure a more efficient implementation of the regulation (those who reduce emissions are those who can do it at least cost). so even though it is not a “market solution” in a strict sense that it is wholely decentralized, i was say it is certainly “market based” (maybe market-esque?)” -Student
I would add that the centralized aspect of the decision would go beyond just the amount of the cap on pollutants emitted, but that the inital cost of the cap-and-trade scheme’s “vouchers” would proably be based on the fine/tax that the government would charge to those who are over the cap.
Price would probably fluctuate afterwards based upon the supply and demand for the “vouchers”.