Cap and Trade as Futures Market

Daniel Hall at Common Tragedies has an interesting argument for cap and trade over a carbon tax.  Cap and trade with bankable and borrowable allowances can respond much more quickly than Congress to new information.

[I]magine that in 2015 we get some bad news from the scientific community
about climate change: the risk of truly damaging climate change are
higher than previously thought. Although it would likely take Congress
a few years to act on this info and revisit the question of what the
cap should now be, firms would start banking more allowances today in
anticipation of the government intervening to tighten the cap, and thus
prices would rise immediately. Conversely, if new scientific info
suggests the risks from climate change are lower than previously
estimated, firms would start borrowing against future allocations
(assuming borrowing is allowed) and prices could slacken in response to
new info.


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