Cap and trade programs do not provide sufficient incentives for innovation: research

Mar 15, 2012 by Allan Chen

Cap and trade programs to reduce emissions do not inherently provide incentives to induce the private sector to develop innovative technologies to address climate change, according to a new study in the journal Proceedings of the National Academy of Sciences.

In fact, said author Margaret Taylor, a researcher at Lawrence Berkeley National Laboratory (Berkeley Lab) who conducted the study while an assistant professor at the University of California, Berkeley's Goldman School of Public Policy, the success of some cap and trade programs in achieving predetermined pollution reduction targets at low cost seems to have reduced incentives for research and development that could help develop more appropriate targets. Taylor is a scientist in the Environmental Energy Technologies Division of Berkeley Lab.

"Policymakers rarely see with perfect foresight what the appropriate emissions targets are to protect the public health and environment—the history is that these targets usually need to get stricter," said Taylor. "Yet policymakers also seldom set targets they don't have evidence that industry can meet. This is where R&D that can lead to the development of over the longer term is essential."

In the study, Taylor explored the relationship between innovation and cap and trade programs (CTPs). She used empirical data from the world's two most successful CTPs, the U.S. national market for sulfur dioxide (SO2) control and the northeast and mid-Atlantic states' market for nitrogen oxide (NOx) control. (Respectively, Title IV of the 1990 Clean Air Act and the Ozone Transport Commission/NOx Budget Program.)

Taylor's research shows that before trading began for these CTPs, analysts overestimated how difficult it would be for emissions sources to achieve targets, in a pattern frequently observed in environmental health, safety, and energy efficiency regulation, including all of the world's CTPs. This was seen in overestimates of the value of allowances, which are permits to release a certain volume of emissions under a CTP. If an entity can reduce emissions cheaply, they can either sell these allowances for whatever price they can get on the market or they can bank these allowances to meet later emissions restrictions.

The cap-and-trade programs Taylor studied exhibited lower-than-expected allowance prices, in part because program participants adopted an unexpected range of approaches for reducing emissions sources in the lead-up to trading. A large bank of allowances grew in response, particularly in the SO2 program, signaling that allowance prices would remain relaxed for many years.

But this low-price message did not cause the policy targets in the CTPs to change, despite evidence that it would not only be cheaper than expected to meet these targets, but it would also be more important to public health to tighten the targets, based on scientific advances. The lower-than-expected price signal did cause emissions sources to reassess their clean technology investments, however, and led to significant cancellations, Taylor reported.

Meanwhile, the low price also signaled to innovators working to develop clean technologies – which are often distinct from the sources that hold allowances – that potential returns to their research and development programs, which generally have uncertain and longer-term payoffs, would be lower than expected.

This effect also helps explain the study's finding that patenting activity, the dominant indicator of commercially-oriented research and development, peaked before these CTPs were passed and then dropped once allowance markets began operating, reaching low levels not seen since national SO2 and NOx regulation began in 1970.

"There are usually relatively cheap and easy things to do at the start of any new environmental policy program," said Taylor, who specializes in policy analysis, environmental and energy policy, and innovation. "But if doing these things has the tradeoff of dampening the incentives for longer-term innovation, there can be a real problem, particularly when dramatic levels of technological change are needed, such as in the case of stabilizing the global climate."

Explore further: New York state bans fracking

More information: Innovation Under Cap-and-Trade Programs, Proceedings of the National Academy of Sciences - www.pnas.org/content/early/2012/03/08/1113462109

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MR166
1.9 / 5 (23) Mar 15, 2012
Isn't anyone worried about the time and money we waste on this nonsense. If all of this "Brainpower" and these research grants were directed towards something useful perhaps we could solve the energy crisis or develop crops that use less water and fertilizer.

Everyone is moaning that our standard of living is going down and the middle class is disappearing. WELL, TRY DOING SOMETHING USEFUL FOR A LIVING!
Jeddy_Mctedder
2 / 5 (17) Mar 15, 2012
no shit. anyone who considers themselves an environmentalist and hasn't figured out for themselves by now that cap'n trade isn't anything beyond a large financial scam is a complete moron or in on the scam.

and this proves simply that there are many morons and scammers out there in the environmental 'community' , at least as much as there are in the public at large and perhaps more because the scammers seem to take advantage of those with a kind and concerned heart.
Howhot
3.8 / 5 (9) Mar 15, 2012
Considering Cap-n-trade was a Republican idea, It makes sense that it would be a failed concept. In a flat and fair market, I think Cap-n-trade could work, but there is just to much behind the scenes market manipulation to make it work.

Cap-n-trade is associated with CO2 reduction, and the only real solution is a global CO2 tax. Its fairer too.

MR166
1.4 / 5 (20) Mar 16, 2012
Keep up with the times, significant AGW caused by CO2 is a total fallacy.

Water vapor in the atmosphere is a negative feedback that far outweighs the slight increase of temperature caused by man's contribution of CO2.


Yellowdart
1.8 / 5 (13) Mar 16, 2012
Of course cap and trade doesn't promote innovation...it's just a tax.
MR166
1.4 / 5 (19) Mar 16, 2012
Howhot it must be something in the Liberal gene pool that makes them think that telling 1/2 of the story is the same as telling the entire story. Yes, Regan did successfully use Cap and Trade to reduce REAL pollutants like lead. On the other hand, the Democrats, like Al Gore, hatched a major trading scheme to enrich themselves by trying to eliminate a harmless trace gas at the expense of the American Consumer. They cajoled the US ( and others )to waste billion of dollars in the hopes that they could profit from this scam.
Vendicar_Decarian
3.8 / 5 (5) Mar 16, 2012
"WELL, TRY DOING SOMETHING USEFUL FOR A LIVING!" - MR166

In Capitalist America at least 80 percent of all labor is unproductive and exists only to provide a treadmill for the rats to run on.

This is "useful" to the Capitalists.

Vendicar_Decarian
4 / 5 (4) Mar 16, 2012
A tax which can be avoided through innovation.

"Of course cap and trade doesn't promote innovation...it's just a tax." - YellowTard

Clearly the tax isn't high enough.

You don't seem to be paying attention, YellowTard.
Vendicar_Decarian
4.3 / 5 (6) Mar 16, 2012
And yet physics tells us the exact opposite.

Hmmm... Who are we to believe? 200 years of established science and 97 percent of the worlds scientists, or a nameless blogger who posts anti-science nonsense to a since forum?

"Keep up with the times, significant AGW caused by CO2 is a total fallacy." - MR166

Spectacular Conservative Idiocy.
MR166
1.3 / 5 (15) Mar 16, 2012
"In Capitalist America at least 80 percent of all labor is unproductive and exists only to provide a treadmill for the rats to run on."

Well VD at least we know which side of the fence YOU sit on. Yup-----Communism is much more efficient than Capitalism. That is why there are soooo many well to do people in communist countries. Also, over the years, the communists have been at the forefront of tolerance and freedom except for the occasional purge of 60 million or so now and again.
Vendicar_Decarian
3.5 / 5 (6) Mar 16, 2012
Commie baiting is a old Republican standard.

The date has changed but the Evil deceit of Republicanism remains.
Howhot
4.3 / 5 (7) Mar 17, 2012
@MR166, thank you for your reply. I've sent it over to the UN-IPCC committee for the eradication of idiots. Be hopeful that you get a response.

This is a real GEM; "Al Gore, hatched a major trading scheme to enrich themselves by trying to eliminate a harmless trace gas at the expense of the American Consumer"

Looser Looser and one half looser.

MR166
1.3 / 5 (15) Mar 17, 2012
Howhot are you not aware that Gore founded a major carbon credits trading exchange in Chicago? As far as I know it went bankrupt.
Yellowdart
1.6 / 5 (7) Mar 19, 2012
Clearly the tax isn't high enough.


Yes, Venereal Disease, if they actually wanted to push innovation, the tax would be much higher. As it is, it's just a tax.

Thanks for validating my point.
Estevan57
2 / 5 (21) Mar 20, 2012
MR166 why do you comment on articles regarding subjects you don't believe in? Are you just lonely and like the attenton? You spout stupidity constantly. I know what the MR stands for...
Howhot
3.7 / 5 (3) Mar 20, 2012
MR166; the founder of the Chicago Carbon Exchange was Richard Sandor with other investors; not Al Gore as you claim. CCX still has a website, but I think your right, they did go belly-up like the fish from the gulf oil spill.

The reason for collapse of CCX is the spin and lies of the republicans and conservatives in their hate filled rampage to destroy any environmentally constructive efforts. I hope you enjoy being part of the that filth.
Vendicar_Decarian
3 / 5 (2) Mar 20, 2012
And exactly what the Conservative Economists demanded.

"As it is, it's just a tax." - YellowTard
Vendicar_Decarian
3 / 5 (2) Mar 20, 2012
"Until July 2010, CCX was operated by the public company Climate Exchange PLC, which also owned the European Climate Exchange.[4] Richard Sandor, creator of the Sustainable Performance Group, founded the exchange and has been a spokesman for it."

http://en.wikiped...Exchange

In addition, the exchange didn't go bankrupt as Mr166 claims. It just shut down.

Shelgeyr
1 / 5 (7) Mar 21, 2012
@VD said:
In addition, the exchange didn't go bankrupt as Mr166 claims.


@Mr166 said:
As far as I know it went bankrupt.


VD, you're calling "as far as I know" a claim?

Thanks for throwing into sharp relief your excessive limitations regarding assessing claims. That must be why you're such a revisionist. And a poor one at that.
Vendicar_Decarian
5 / 5 (1) Mar 21, 2012
"VD, you're calling "as far as I know" a claim?" - Shelgeyr

As far as I know it is a claim.
Howhot
5 / 5 (3) Mar 21, 2012
You know, the funny part of this episode is that, this is cap-n-trade was exactly what the CONSERVATIVES WANTED as a means of controlling CO2. It's kind-of a good idea but getting any market off the ground (specifically with CO2) is not easy! The politics of getting companies to buy in is screwy, as can be gleamed from the comments on this thread. The shutdown of CCX should be studied to access the why-and-how to build a market system.

Anyway, I think the next step (besides putting in a democrat house and senate) is to follow Britain's example and support a CO2 Tax. Not only does it fight AGW (global warming from industrial CO2), but it would put money in to cash strapped USA deficit reduction efforts.

Its a tax that can be made none-regressive if the front end is loaded with consumer credits and rewards for behavior that reduces CO2 creation from fossil fuels.


ryggesogn2
1.5 / 5 (8) Mar 21, 2012
Considering Cap-n-trade was a Republican idea,

The Road to Serfdom is dedicated to socialists of all parties.

Profit will provide the incentives.
Vendicar_Decarian
5 / 5 (1) Mar 22, 2012
Wage slave RyggTard is concerned about becoming a serf.

I find that odd since he would have more freedom as a serf than he does now as a wage slave.

"The Road to Serfdom is dedicated to socialists of all parties." - RyggTard

It is amusing to see how far Libertarian/Randite Fascists like RyggTard will go in order to further the Corporate Takeover and destruction of America.
Yellowdart
1.7 / 5 (6) Mar 22, 2012
And exactly what the Conservative Economists demanded.


I don't care who demanded it. It's a lousy system meant just to tax, not actually control CO2 worth anything that'll help the planet. I don't care whether it was Dems, Reps, or even your mom who came up with it. It's lousy.
ryggesogn2
1.6 / 5 (7) Mar 22, 2012
What the socialists selectively forget is that ALL utilities are regulated by multiple state and federal agencies.
Politicians like this as they have more power. The industry likes this as they only have to pay off a few politicians.
If the state truly protected private property rights, then the utilities would have to respond to thousands of lawsuits filed by those whose property is being damaged by pollutants. They would have to pay out billions OR invest that money into cleaner technology. The profit motive.
As it is, they get permission from the few politicians they can bribe to pollute.
Howhot
5 / 5 (2) Mar 22, 2012
What the socialists selectively forget is that ALL utilities are regulated


You know R2; I don't even think you know what a socialist is. You seem to imply that it some how evil to demand more of government.

How would more government effect you?

Howhot
5 / 5 (2) Mar 23, 2012
What the socialists selectively forget is that ALL utilities are regulated by multiple state and federal agencies.


Obviously a well regulated system is better than one that is not!
Vendicar_Decarian
not rated yet Mar 23, 2012
The Conservative Economists created cap and trade to provide corporations the ability to distribute CO2 emissions in order to maintain corporate flexibility while downward pressure was placed on CO2 production by pricing the cost of CO2 emissions.

Your objection has no merit, and is based strictly on irrational emotion.


"I don't care who demanded it. It's a lousy system meant just to tax, not actually control CO2 worth anything that'll help the planet." - YellowTard
Vendicar_Decarian
not rated yet Mar 23, 2012
It is quite simple.

If RyggTard doesn't like it, it is Socialism.

If he really doesn't like it, it is Communism.

That is as far as his reasoning skills allow him to go.

"You know R2; I don't even think you know what a socialist is." - Howhot
Vendicar_Decarian
5 / 5 (2) Mar 23, 2012
Thank God for California that Enron was regulated out of existence after Bush just ignored the Companies rape of California.

"What the socialists selectively forget is that ALL utilities are regulated by multiple state and federal agencies." - RyggTard
ryggesogn2
1.4 / 5 (9) Mar 23, 2012
What the socialists selectively forget is that ALL utilities are regulated by multiple state and federal agencies.


Obviously a well regulated system is better than one that is not!

Then you have no complaints about the present 'well regulated' systems?
it some how evil to demand more of government.

It is when that govt violates the law and creates thousands of laws that turn everyone into a criminal.
"If you have 10,000 regulations, you destroy all respect for the law."
Not long ago a person drowned in a shallow pool in Britain because regulations prohibited 'rescue' workers from attempting a rescue without proper 'health and safety'.
ryggesogn2
1.4 / 5 (9) Mar 23, 2012
More govt kills: people, innovation, spirit, motivation, respect for law,....
ryggesogn2
1.4 / 5 (9) Mar 23, 2012
evil to demand more of government.

"TEACHERS are banning schoolkids from having best pals so they don't get upset by fall-outs. "
http://www.thesun...nds.html
"A woman yesterday claimed she was trapped in a supermarket lift with her granddaughter for more than an hour - because health and safety rules stopped staff pushing a button to rescue them."

Read more: http://www.thesun...pwenI1Pq
Howhot
5 / 5 (1) Mar 23, 2012
You read the wrong news papers R2. You should watch the "ED Show" and expand that narrow point of view. What government should be doing is providing a level and fair playing field, but also have strategic investments that work to make new markets and a more educated work force.
Howhot
5 / 5 (1) Mar 23, 2012
VD
Thank God for California that Enron was regulated out of existence after Bush just ignored the Companies rape of California


Ha I forgot about that. Yeah and the conservative push back was so over the top pro-Enron it was sick.
ryggesogn2
1.7 / 5 (6) Mar 23, 2012
Texas Learns in California How Not to Deregulate
"On Monday night, Gov. Gray Davis deemed the state's experiment a "colossal and dangerous failure" and proposed government intervention to meet the state's energy demands, stabilize rising prices and help ensure that the two largest private utilities avoid bankruptcy. Then today, Mr. Davis was in Washington for a White House meeting with top federal officials to discuss California's energy crisis."
"But as demand gradually outstripped supply, California did not respond by building new power plants. Partly because of tough environmental regulations, Mr. Stahlkopf said, California has not built a major plant in more than a decade. A new plant is scheduled to begin operating in June."
http://large.stan...yardley/
ryggesogn2
1.7 / 5 (6) Mar 23, 2012
"The coincidence of reduced supply because of lower hydropower
availability, and increased demand because of an unexpected
surge in the West Coast business cycle, is not likely to occur
again. Nor would power distribution companies again be likely to do
little or nothing in response to a multiyear decline of the safety margin
of excess generating capacity."
"But escalating prices in
wholesale markets could not be passed on to its customers because the statute
had required that retail prices be frozen during transition."
"Failure to end the transition period, allowance of the
three-cent price premium too late, and prolonged support of the PX as the only
source of wholesale power were CPUC positions that made for an accumulation
of self-serving regulatory induced economic destruction."
http://yaleae.org...Avoy.pdf
The CA power crisis was the fault of the govt.
Howhot
5 / 5 (1) Mar 24, 2012
R2; You are so the expert! What rightwing nut palace did you dig that crap from? The problem was that CA people got really pissed off at the state Legislature, from higher "Energy Prices" (in quotes because it was only Enron only companies jacking prices) and the state did something about it.

Bottom line is this R2; Enron had total control energy pricing TOP-TO-BOTTOM through out CA by criminal market manipulation. Your buddies in TX had more to do with that than any Clinton underling you wish to dream up.

R2 states; "The CA power crisis was the fault of the govt."

Maybe; I'll give you some that; but our system of government is citizen run, and a flashy company with lots of lobbyist and money can really effect a debate. Goldman-Sachs is like the Enron model; all nice and gooey until you find out what its made of.

Quit arguing up the wrong tree; your better than that.

Vendicar_Decarian
not rated yet Mar 24, 2012
RyggTard uses a right wing rag - THE SUN - as a reference even after various reporters and management of that filthy newspaper have been arrested for telephone fraud and illegal wiretapping.

On the other hand, from RyggTard's own reference newspaper... Isn't this guy George Bush?

M25 Rapist guilty of eighth ordeal
http://www.thesun...eal.html

Rupert Murdoch Lied To The British Parliament About The Sun On Sunday

http://aishamusic...ish.html

Sun executives arrested Murdoch Fuying extinguishing

http://www.stockm...ing.html

Filth
Vendicar_Decarian
not rated yet Mar 24, 2012
What systems are you referring to Tard Boy? A well regulated militia?

"Then you have no complaints about the present 'well regulated' systems?" - RyggTard

Present a Liberal with a problem he will improve the system to solve or reduce the problem.

Give the same power to a Libertarain/Randite, he will through sheer incompetence expand the problem, cause several others in the process, and then whine that the system never worked and use that as an excuse to try and destroy it.

Just as the Libertarian/Randite traitors have done to their own nation.

Pure Filth
Vendicar_Decarian
not rated yet Mar 24, 2012

"You know R2; I don't even think you know what a socialist is." - HowHot

That is so funny, because in another thread RyggTard stated that a collection of elite nations is a socialist.

What an idiot.
ryggesogn2
1.7 / 5 (6) Mar 24, 2012
but our system of government is citizen run,

What system is that?
If you mean the federal govt, it is a constitutional republic which was defined with limited, enumerated powers.
It was the 'progressives' that began taking more power to control everyone's lives. Those affected have responded.

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