I'm referring to the CO2 cap-and-trade allowance auction held by the State of California. The fact that the auction ran smoothly and compliance entities and others put their money down is one important step in establishing the program's credibility.
In 1998 and for the subsequent eight years or so, I remained agnostic regarding what I viewed as the trade-offs between cap-and-trade and carbon taxes. What happened to change that? Three words: The Hamilton Project.
The negotiating teams are now tasked under the Durban Platform with identifying a new comprehensive policy architecture. The negotiators are therefore hungry for new ideas, in particular for outside-the-box thinking.
Since when are low prices considered to be 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.
In the U.S., political polarization has decimated what had long been the key political constituency in the Congress for environmental action, namely, the middle, including both moderate Republicans and moderate Democrats.
Market-based approaches to environmental protection should be lauded, not condemned, by political leaders, no matter what their party affiliation. Otherwise, there will be severe and perverse long-term consequences for the economy.