One of the proposed techniques for reducing carbon dioxide emissions is cap-and-trade. Companies would be allowed to emit a certain amount of carbon dioxide. If they reduced their emissions further than that, they could sell the excess “right to emit” to companies that found it very costly to do so.
Cap-and-trade is a form of tradable permits. And, says Timothy Taylor, trading permits have revolutionized pollution control. But are they moral?
Taylor, an economist, writes about pollution permits in the latest issue of PERC Reports. He starts with the old view, exemplified by Eugene McCarthy, a Democratic politician and intellectual. In 1990, McCarthy described trading sulfur dioxide emissions as no better than Medieval indulgences, which allowed people to obtain absolution from sins through donations to the Church. Says Taylor:
The long-ago notion of indulgences was that those who made sufficient payments to the Church could be absolved of past sins or released from purgatory after death. In other words, the rich could literally buy their way into heaven. The practice was widespread and repellent enough by the early 1500s that it led to Martin Luther’s break from the Catholic Church and thus to the Protestant Reformation.
McCarthy drew a direct connection from indulgences to pollution permits. He noted that “the anticipation of credits for forgiveness of sin” had motivated William of Aquitaine to establish the monastery at Cluny in 910 so that monks could pray for the salvation of his army as it went about its work of “war, pillage, rapine, and other activities.” This same sentiment, McCarthy wrote, “perfectly echoed” the Clean Air Act’s stipulations that allowed a company to pollute in excess of its allotment, so long as it purchased credits from another that had reduced pollution elsewhere.
Taylor’s essay goes on to say that economists long ago stopped thinking of pollution as something sinful. Rather, they treat it as a practical problem—the creation of unwanted byproducts. The pollution trading program that miffed McCarthy, it turns out, worked: it both sped up and lessened the cost of reducing sulfur dioxide emissions from electric utilities. Since then, trading has been used to get the lead out of gasoline and is currently reducing water pollution around the country.
Trading permits is workable and effective. Taylor isn’t sure that it can be effective with the “elephant in the room”—carbon dioxide emissions. But trading pollution permits has established itself as an important tool in the environmentalist’s toolbox.