By Michael Barone, Thomas Jefferson Street blog
This article on the problems in Europe's carbon cap-and-trade system is instructive. Carbon prices have slumped because of decreased economic demand. Obama budget $643 billion in cap-and-trade revenues, but there is no assurance that the money will be coming in. And like progressive taxes, carbon revenues tend to be volatile and ultra-responsive to the economic cycle, which is to say they slump sharply just when government needs revenue for countercyclical spending programs. Note also that Europe's original system was poorly designed. There's a reason for that. It's hard to design a cap-and-trade system that will be fair and work. And potential market participants are going to work very hard to set terms and conditions which will allow them to game the system to maximum advantage. Corporations in this country are already busy doing this.
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By Michael Barone