California’s Carbon Cap and Trade
In: Economics
Cap and trade is an interesting alternative to the carbon tax, it basically works like this:
You get a tax based on your industry for every tonne of CO2 you release over a certain limit (that depends on your industry). I don’t know the actual number for california but its a pretty high tax.
So what they do is hold auctions for ‘lots’ which are basically a get out of tax card for a given tonne of CO2 (or equivalent). They auction of millions of them but never quite enough, and you trade/sell lots you buy with other companies/people if you want. If you are unable to get all the lots you need to cancel out the tax then the government will sell them to you at a way higher rate than what you would have gotten at auction. The lots are generally good for about 3 years (if I remember correctly).
The mechanism of the auction itself is really interesting too (from here on out I’m assuming its like ontarios former cap and trade program so someone can correct me if california is different).
First they set and minimum bid, do lowest bid price, and have it a blind bid. so if you have 10 lots, and party A bids 10$ (each) for 5 lots, party B bits 5$ for 4 lots, party C bids 3$ for 6 lots, and party D bids 2$ for 10 lots.
Party A wins 10, party B wins 4, Party C wins 1, and they all pay 3$ since that was the lowest winning bid (party D gets nothing).
Its been really successful actually as an alternative to a straight tax.
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