New study confirms cap-and-trade leads to low-cost pollution reductions

After hearing that his obituary was published in the New York Journal, Mark Twain was quoted as saying, “The reports of my death are greatly exaggerated.” 

A similar retort applies to media coverage of a recently released report that questioned the effectiveness of cap-and-trade policy, since the study actually found that federal programs to control sulfur oxides (SOx) and nitrogen oxides (NOx) achieved goals at lower than expected costs. 

In the study, Lawrence Berkeley National Lab (LBNL) researcher Margaret Taylor found that greenhouse gas cap-and-trade programs do not necessarily induce the private sector to develop patents for innovative technologies to address climate change.  

Unfortunately for the study, the finding has been woefully misinterpreted and seized upon by those looking to undermine California’s plan to use cap-and-trade to cut climate pollution. David Roberts of Grist called the report’s announcement “a classic example of a press release overhyping and oversimplifying.” 

Published in the Proceedings of the National Academy of Sciences, the paper reaffirms the well-documented idea that cap-and-trade programs help companies meet emissions targets more cheaply than anticipated. The consequence, observed Taylor, was low allowance prices and a consequent decline in related patents.   

The key point of the paper though—and the main reason that this is a positive—is that cap-and-trade regulations keep pollution abatement costs low by encouraging program participants to find and adopt an unexpected range of approaches for reducing emissions.

Here are two key takeaways from Taylor’s paper:

  1. Reducing emissions more cheaply than expected goes hand-in-hand with faster-than-expected deployment of clean technologies and strategies.
  2. The flipside of low costs and rapid deployment means fewer new inventions and patents (a point Taylor emphasizes).

Overall, the report should be read as good news for California. As Taylor found, these approaches may not result in an onslaught of new patents but they are likely to cut pollution quickly and efficiently. Companies that are capped under California’s program can use industrial energy efficiency, building weatherization and fuel switching efforts to cut emissions.

We appreciate the spirit of Taylor’s inquiry. Yet, the question being asked isn’t the right one.  Rather than asking if a policy spurs measurable innovation in the face of climate change where action is unquestionably needed, the right question is, “does cap-and-trade show greater promise to spur low-cost solutions better than the alternatives?” 

The answer is a definitive “yes” when the cap-and-trade policy creates expectations of a nontrivial, persistent price on pollution. A recent story in Reuters stated that global warming is close to becoming irreversible if we don’t act now. California and economies around the world are acting by putting a price on carbon. This is the most environmentally and economically sensible approach to cutting emissions, which is key to helping us avoid the worst consequences of climate change.

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