Don't Write Off Cap and Trade

Various journalists and advocates have, of late, described America's Regional Greenhouse Gas Initiative (RGGI) as being near "the brink of failure" thanks to the trend of very low prices of permits to emit carbon dioxide. Likewise, commentators have claimed that Europe's carbon market, the European Union Emission Trading Scheme (EU ETS), may be "sinking into oblivion" because its emissions allowances too have become very cheap.

Since when are low prices considered a problem? To understand what's going on, we need to remind ourselves of the purpose—and promise—of a cap-and-trade regime, and then look at what's been happening in the respective markets....

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