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Cap And Trade Vs Fuel Efficiency Requirements

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by Felix Salmon
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Jun 02 2008 12:00am EDT

Cap-and-Trade vs Fuel Efficiency Requirements

This is one of the silliest arguments I've yet seen against cap-and-trade:

Although the transportation sector represents around 35 percent of the nation's carbon emissions, oil companies and refiners -- which fuel that sector -- would be granted just 4 percent of total allowances. That would force them to buy carbon credits, which would drive up the price of gasoline and diesel fuels.
At a time of sharply rising prices, oil executives say this is not the best way to reduce carbon emissions. Better, they argue, to raise fuel efficiency requirements directly or set up a low-carbon fuel standard.

Let's say that raising fuel efficiency requirements would successfully reduce carbon emissions by the same amount as a certain cap-and-trade system. Then under that system, the market could, if it wanted, simply raise fuel efficiency and reduce its carbon emissions that way. A cap-and-trade system in no way precludes higher fuel efficiency: indeed, higher fuel efficiency, and many other things like it, are baked in to cap-and-trade assumptions. But under cap-and-trade, if something else is a smarter or more efficient way of reducing carbon emissions, the market can do that instead. Why do these anonymous oil executives suddenly think that Uncle Sam knows best in such matters?

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