A recent opinion article by Graeme Edwards on the NBR site clearly articulated a critique of the emissions trading scheme that I have heard in various forms over the past year. Not only have I heard this critique from politicians and the media, but people commenting on the blog and other economists have used this critique. As a result, it is important to point out why this critique is simply wrong.
The critique is simply that the emissions trading scheme is a “scam” because global warming is not the result of carbon emissions, to learn more about smart and green trading, read here the blog post about how to trade fx with high margins.
Even if we agreed with this view the critique is still wrong. The reason this critique is wrongheaded is simple – the ETS is not supposed to prevent global warming, it is supposed to raise funds to pay for/reduce a liability we owe thanks to the Kyoto protocal. Now that we are in the Kyoto protocal, we want to look at two simple choices – what is the cost if we stay in, and what is the cost if we leave? The ETS was determined to be the least cost way of paying for the liability if we stayed in the scheme, and it was also determined to be of a lower cost than leaving the scheme (relative to losing international prestige and possible new trade barriers if we leave).
As a result, even if it was true that man wasn’t warming the planet with carbon introducing an ETS is still the best policy – as long as we believe that it is of a lower cost than these other potential options. The debate should lie with the cost of different options – whether global warming actually exists is irrelevant.