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Cap and Trade is the linchpin of the government's effort to curb carbon emissions. Senior Editor Paddy Hirsch explains how the cap and trade model works.
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Greg Crannell replied on May 14, 2009 Permalink
@ vikram parekh
Most of the arbitrary lines set to limit pollution are still far below our current levels. So pollution overall is supposed to reduce, so influencing government policy would only come into play as to how much it's incrementally reduced.
Also there are different ideas as to how the credits are originally allocated, in this video it was done upon age, which is the traditional operating procedure for cap and trade. However there are plenty of other options such as letting market mechanisms determine the price of credits.
Good basic analysis of Cap and Trade, personally in the case of air I'm a fan of the 'Sky Trust' model cap and trade system.
I wish you had mentioned the basics of how credits are originally allocated and why this is so important to what incentives are provided/how they're effected.
Also, one big problem w/ cap and trade systems worth noting is the concentration of pollutants which can result from people like 'gus' selling their credits to higher polluters.
The higher polluters do pay a higher price for their pollution, and that's great. However the area within which they operate continues to suffer and does not see enough of a reduction to limit externalities upon local--or in the case of air even regional-- constituencies.
vikram parekh replied on May 14, 2009 Permalink
Thanks Paddy for such a wonderful series. One question i have w.r.t. cap-n-trade is how can we all be sure that the caps are fair? what if one of the boys is favored over the other (depending on the political climate)....wont that create issues with confidence in the system and ultimately result in everyone trying to influence the govt policy rather than genuinly invest in polution resulting techonology?
Jeannie Cat replied on May 14, 2009 Permalink
Hi, I love the series! I prefer it to the news and the explanations are tops.
I have a few questions:
What are rating agencies and how do they work?
After learning more about Madoff I wondered:
-How front-running works (is it essentially working off an inside tip?)
-How split strike conversions work.
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