Krugman on cap-and-trade

Paul Krugman at his blog gives an accessible defense of the "cap and trade" incentive system to reduce greenhouses gases in Unhelpful Hansen 12/07/09. The Hansen of the title is James Hansen (not neocon war zealot Victor Davis Hanson), who Krugman praises as "a great climate scientist", noting, "I take what he says about coal, in particular, very seriously." But Hansen argues that cap-and-trade is ineffective, and Krugman explains why he disagrees with that view. An excerpt:

... the fact is that cap and trade works. Hansen admits that the sulfur dioxide cap has reduced pollution, but argues that it didn’t do enough; well, it did as much as it was designed to do. If Hansen thinks it should have done more, he should be campaigning for a lower cap, not trashing the whole program.

Oh, and the argument that if you create a market, you’re opening the door for Wall Street evildoers, is bizarre. Emissions permits aren’t subprime mortgages, let alone complex derivatives based on subprime; they’re straightforward rights to do a specific thing. It will truly be a tragedy if people generalize from the financial crisis to block crucially needed environmental policy.

Things like this often happen when economists deal with physical scientists; the hard-science guys tend to assume that we’re witch doctors with nothing to tell them, so they can’t be bothered to listen at all to what the economists have to say, and the result is that they end up reinventing old errors in the belief that they’re deep insights. Most of the time not much harm is done. But this time is different. [my emphasis]

Tags: cap-and-trade, paul krugman