Wednesday, April 27, 2011


The cap and trade sytem used to reduce acid rain is often quoted as the justification of other ETS systems such as the Australian CPRS.  However, it is important to understand that there are important differences between the cap and trade used to drive down acid rain and some of the other cap and trade systems.
Firstly, the acid rain system was an offset credit cap and trade system. Wikapedia ( says: “As an incentive for reducing emissions, for each ton of sulfur dioxide reduced below the applicable emissions limit, owners of a generating unit received an emissions allowance they could use at another unit, keep for future use, or sell. This legitimized a market for sulfur dioxide emissions allowances, administered by the Chicago Board of Trade.[5] Units that installed flue gas desulfurization equipment (e.g., scrubbers) or other “qualifying Phase I technology” which reduced sulfur dioxide emissions by 90%, qualified for a two-year extension of the 1995 deadline, provided they owned allowances to cover their total actual emissions for each year of the extension period.” This system generates no revenue for governments.  It is worth noting too that this cap and trade was only part of a complex system that included substantial regulation.  (See link above for more detail.)
This is very different than some other programs, such as the CPRS, where governments SELL permits. These systems are defacto taxes. The price increases associated with this type of system have to be much higher because the price increases have to take account of the cost of the tax in addition to the actual cost of clean-up.
Secondly, there was always plenty of low sulfur coal available so the target could always be met. The cap and trade simply allowed various generators to use different strategies. It also encouraged generators installing scrubbers to scrub more then the minimum required to meet target for the sake of trade-able allowances.  The price of low sulphur coal would have had a stabilizing effect on the price of trade-able allowances
It is a bit more tricky where investment is required to meet targets. The value of trade-able allowances will vary enormously depending whether investors have over or under estimated future demand. Not desirable when investment in things like clean energy take years years to be paid back

Wednesday, April 20, 2011

The Damage Caused by Unemployment

This post was first published in Australian Options:

There are many things that contribute to the damage caused by unemployment. One problem is that politicians are unwilling to admit that they haven't got a quick fix for this shortage of work. As a consequence, the only fixes they are willing to consider seriously involve creating more work and using welfare to alleviate some of the economic pain. That is, when the more scurrilous politicians are not trying to blame the unemployed for unemployment and doing all they can to increase the damage to the unemployed.
The second problem is that employers that create unemployment by working individuals long hours are not the ones paying the unemployment welfare bill. Peter Brokensha's recent figures (Australian Options, Autumn 2004) suggest that over 700,000 extra 35 hr/week jobs would be created if nobody averaged more than 45 hrs/week. Perhaps we should go "user pays" and let employers who claim that they save money by working people long hours pay the cost of the unemployment welfare bill? Perhaps too, the union movement might ask itself whether the working class as a whole might not be better of if penalty rates for overtime were traded off for increases in base pay rates. Worker dependence on those hours at double time is part of the reason work-sharing is resisted.
The third problem is we assume unemployment is automatically damaging and ignore the possibility that there are ways of reducing the damage without reducing unemployment. There are certainly individuals who desperately need work for economic and other reasons. However, there are also those who are not damaged by unemployment and use it as an opportunity to further their education, start a new business or simply seek the perfect wave. I am sure that there are many employed people who would see 12 months on the dole as a welcome opportunity, particularly if they knew they could get work at the end of it. Most of us have worthwhile things we really want to do but never get around to because we never have the time. The shortage of work should have been treated as an opportunity to increase the skills of the workforce, create new business and allow individuals to spend time on more satisfactory things than working long hours.
Perhaps we should start saying that the real problem is that there are people unemployed who are damaged by unemployment, not unemployment as such. Yes, we need to think about creating jobs and providing welfare. Yes, we need to think about sharing the work that is available. But we also need to think about other ways of reducing the damage and actually using the opportunities unemployment offers individuals.

John Davidson