Cap-and-Trade: The Return of the Safety Valve

If you want to cut carbon emissions, there are some ways of doing so which actually make money, in net present value terms. Some methods, however, cost money – and many of the most promising emissions-reduction schemes cost a lot of money. Under a cap-and-trade system of carbon credits, the higher the cost of such credits goes, the more that ambitious carbon-reduction schemes become econmically viable. That's the whole point of a system. But the electric utilities, of course, are pretending not to understand:

Executives of major utilities are prodding Congress to install a feature in climate-change legislation that would prevent the price levied upon carbon-dioxide emissions from rising too high.
At least 26 utilities have signed a letter calling for an "economic safety valve" as part of a system that would set a limit on such emissions...
"We need a mechanism that would send a more predictable price signal that would help us plan for the billions of dollars of investments that we and others will have to make to move to a desired lower-carbon economy," said John Bryson, president and chief executive officer of Los Angeles-based Edison International.
According to the U.S. Department of Energy, electric utilities are the largest sector that would be covered by a law curbing CO2 because they produce about 40% of the nation's emissions. Cutting emissions would require utilities to build more nuclear- or wind-power plants.

Any "safety valve" mechanism would defeat the purpose of a cap-and-trade system, which is, um, to cap emissions. A cap-and-trade system without an emissions cap is basically a carbon tax without the tax, and the chances that it would result in any meaningful reduction in emissions are slim indeed.

The fact is that nuclear- and wind-power plants are expensive, and the best way of making them economically feasible is to allow carbon-based energy prices to rise as far as the market takes them.

All that said, if you are going to have a safety valve, then Joe Lieberman's proposal seems to be the best way of having one:

There are two types of safety-valve mechanisms in legislation being prepared by the Senate. One, proposed by Sen. Jeff Bing-aman (D., N.M.), would allow the government to freeze the price of a carbon-emission credit once it reached a certain level. Another, which is about to be introduced by Sen. Joseph Lieberman, a Connecticut independent aligned with Democrats, would create a politically appointed board of experts, similar to the Federal Reserve Board, with authority to adjust various aspects of trading, such as borrowing credits from future years, if it saw "significant harm to the economy" in prices.

At least that way the total cap in emissions is retained, even if the cap in any given year is breached.

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