The USS Quad Damage


Because solving all the world's problems is something I can do in my spare time.

Why do we not have an ETS? It appears to be dead simple to implement. I’ve had intelligent people tell me that they prefer the Carbon Tax over an ETS, but it seems clear to me that an ETS is far superior to a Carbon Tax. Here’s my reasoning to why the ETS is the ideal solution, as well as how to implement it. In this case the supervising entity is called the EMD — ETS Management Dudes.

First, find some agreed upon measure of Carbon. Embodied energy sounds OK. Measure these at the source. That is, whenever they’re dug up (or imported) measure the embodied energy. Imported stuff should include transportation, as well as a “overseas penalty” until that country also has an ETS. Exports get a discount, and export transport is not counted, and there’s a “overseas discount” to countries that do not support an ETS. Money from Imports goes to EMD; money for exports comes from EMD.

Allow companies to create Carbon Credits based on how much resource they create. That is, if they can generate negative embodied energy (by putting carbon back into the soil1, for instance). Similarly, force generating entities to purchase these credits (at some egregious penalty — 10 times the market rate of a credit). The EMD should be given “ownership” of all credits naturally generated on government land (government needs to pay for government works, like any company). That is, if a forest is responsible for creating carbon credits, they belong to the EMD. Similarly, if a forest is responsible for generating CO2, the EMD is responsible for that also.

The EMD should then generate credits based on how much CO2 is deemed acceptable to society. The EMD should first use the available credits to pay for any CO2 it is responsible for. The credits will then be bought by the market at the market rate. The EMD should have some known algorithm for credit release — trickle feeding it daily should work. The money generated should be used for exports and purchasing more credits later. This way the market is steered so that prices have some stability.

At the end of the financial year, all credits are dissolved and any penalties are paid. The left-over money in the EMD (sans operating costs and whatever it takes to stay liquid) is used to discount the credits (that is, if the market created a million credits, and the EMD has a million dollars, the creators get 50c and the purchasers get 50c. This makes EMD credits less sought after).

The reason this system works better than a carbon tax is that it directly controls how much carbon (or whatever unit) is generated by the economy. Want it to generate 90,000 tons, generate 90,000 credits! At the end of the year you know exactly how much greenhouse gas was generated. A Carbon Tax, on the other hand, might just mean that you get paid for people generating Carbon. You can increase the tax, but a lot of companies might just pay the extra tax, whether it’s effecient or not.

So there you go! Easy.

1 I understand this means that shoving Carbon into the water is a problem — Water naturally absorbs the CO2 and also causes a lot of problems for marine life. However, this is not the ETS' problem. Conservation laws can be passed to disallow this sort of behaviour.