No paying to pollute

One of the least persuasive criticisms of cap-and-trade programs like RGGI and the Transportation Climate Initiative is that they let firms “pay to pollute.” That’s a mistake: What these programs really do is let firms outsource their emission reductions, the way firms (and governments) outsource many other functions. In some circumstances, letting companies meet their obligations that way makes a lot of sense. Take airlines, for example. We need them to fly but there are now no adequate substitutes for jet fuel, so it makes sense that they can pay firms in other industries to reduce emissions by buying their permits. Cement is another good example. We’ll need a lot of cement for Biden’s big infrastructure program, but making cement is very energy intensive and produces a lot of emissions. Letting cement companies reduce those emissions indirectly by paying firms in other industries to cut back allows cement production to continue and stimulates the industry to develop more energy-efficient technologies, because buying permits is expensive. Here’s a final example: Suppose a firm is going to shut down an outdated, inefficient facility but the more energyefficient replacement won’t come on line for another couple of years. Rather than cease operations until then, it’s better if the firm can maintain output by temporarily buying emission reduction permits from elsewhere. In other words, these cap-and-trade programs don’t let companies escape their obligation to reduce emissions; they allow industries to stay within the cap with a minimum of disruption and cost.

— Robert Repetto, Amherst