Girardi | Keese

California's Pollution Permits

What are pollution permits?

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A pollution permit is an example of emissions trading, or the cap-and-trade approach to environmental protection. Wikipedia and others refer to this as a "market-based approach." In economic terms, the government's cap-and-trade programs give companies a financial incentive to reduce greenhouse gases. Essentially, pollution permits give companies the legal right to pollute (up to a certain point).

Demand is strong for pollution permits in 2017.

As the Associated Press reports, demand has "rebounded" for pollution permits in the state, following a favorable court ruling - favorable to the permit program - which resulted in $500M in revenue for California government. (The California Supreme Court, however, may ultimately reverse the lower court's decision; the case has been appealed.)

Pollution permits are having a good year in 2017; in later years, though, not so much. As we referenced in an earlier post about California's lawmakers taking serious steps (some of them, anyway) to fighting climate change, the debate on the future of emissions trading programs in California means considerable market uncertainty.

In other words, companies aren't going to pick up permits that allow for pollution in the next decade, given that no one knows what the law will allow for.

Criticism of emissions trading programs:

In theory, emissions trading would seem to be a step in the right direction. But a Guardian reporter - way back to 2007 - would beg to differ, who writes about the inconvenient truth about the carbon offset industry.

"That tension," Nick Davies writes, "between the demands of the planet and the imperatives of commerce, lies at the heart of the global response to climate change and, in particular, of carbon offsetting."

Davies cites the example of a UK airline that was apparently one of the first companies to implement a form of emissions trading. The program gave passengers the option to pay to offset carbon emitted during the flight.

The result?

A reduction in emissions by a mere fraction of overall yearly emissions - not enough to make a dent.

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