The Cap and Trade 'Theory'
NYTimes - How did cap and trade, hatched as an academic theory in obscure economic journals half a century ago, become the policy of choice in the debate over how to slow the heating of the planet? And how did it come to eclipse the idea of simply slapping a tax on energy consumption that befouls the public square or leaves the nation hostage to foreign oil producers?
The answer is not to be found in the study of economics or environmental science, but in the realm where most policy debates are ultimately settled: politics.
History of Cap and Trade
NYTimes - Cap and trade evolved from an academic debate that began in the early 1960s when Ronald H. Coase, then a professor at the University of Chicago Law School, wrote an influential paper, "The Problem of Social Cost,” that examined when government should intervene in cases where a private entity causes public harm.
In 1971, W. David Montgomery, a Harvard graduate student in economics, fleshed out the idea of emissions trading in his doctoral thesis and has spent much of the last three decades trying to figure out how the marketplace can deal with environmental problems that are caused by relatively few actors but have consequences felt globally.
He supported the acid rain trading program, but said it was based on “unique historical and economic circumstances” that did not apply to the much more difficult problem of carbon dioxide emissions.
Mr. Montgomery, now a vice president at Charles River Associates International, a consulting firm, said Mr. Waxman’s proposal would ultimately act like a tax on carbon-producing industries, disguised by a complex cap-and-trade system.
“It is a steel fist of regulation covered by a velvet glove of emission trading,” Mr. Montgomery said. “Why not just impose a carbon tax?”
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