Monday, January 12, 2015

'Low oil price? increase carbon price!' 3 - John Cochrane edition

John Cochrane responded, already a week ago, to Larry Summers op-ed on a carbon tax. He notes some comments from others and brings forth a few of his own thoughts. On of main ones is that a tax on carbon is not the only way to increase the price (so my blog series title remains valid, phew), how about a cap-and-trade, he asks.

The post pulls the idea very much into the American context. In particular, talking about a new tax breaks open the pandora box on income distribution and loopholes. The main idea of course was much generally applicable. So what is happening in other places. For instance, is there talk on further reducing the number of permits available in the European Emissions Trading Mechanism?

As a matter of fact. There is already discussion ongoing at European levels (here [], here  and here []) to reduce the number of permits in the market to increase the price, currently around €6.70 []. In summary, these discussions were already ongoing for a while because since the great recession there is a glut of permits, in the already overwhelmed market from time that governments gave away too many credits. Some of these permits will be taken from the market, potentially to be returned in the future. The fight is going to be whether they will be. In the short term, the price of permits is expected to rise by 50-60% by June this year. I found no mention that the current oil price place a role in these decisions. As Cochrane mentions in his post, referring to the oil price of 6 months ago, as Summers did, for new policy that may take at least another 6 months to form, but likely years, is not very convincing.

Outside Europe? South Korea will start its exchange on today (12 January, here [] and see also the second Bloomberg article above). 

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