...in a business driven by government regulation, there is always the risk that fickle politicians might change the rules of the game, with unpredictable consquences.Latvia is currently suing the European Commision for an inrease in its allocation of allowances. There are another five such cases, and if any of them succeeds 'it could contribute to another glut in allowances and antoher slide in the [emissions] price'.
I don't see emissions trading as very wondrous. It might succeed in cutting emissions, but it will do so less efficiently than a carbon tax which itself, in my view, is far inferior to a Climate Stability Bond regime, which would reward people for actually stabilizing the climate, rather than inflict grievous upfront costs on the basis that cutting anthropogenic, according to 1990s science, is the most efficient way of reducing climate change. The argument in the Economist points to similar reason why, I believe, a Climate Stability Bond regime would be preferable: he the stated policy goal - a more stable climate - is less variable than the alleged means of getting there. It is not just our rapidly expanding knowledge of the magnitude, causes and consequences of climate change that threaten to invalidate Kyoto as a policy, but the vulnerability of Kyoto to political meddling - of which the Economist gives but two examples.
Not only that, but it would be much easier to achieve public participation and support for policy goals than for the alleged means of reaching them. Everybody wants to see climate stability and I am sure there would be more support for Kyoto if it could be shown that cutting anthropogenic greenhouse gas emissions were the most efficient means of achieving it. A Climate Stability Bond regime would contract out the achievement of climate stability to investors, who would have powerful incentives to explore and implement the most efficient solutions to climate change. It would be up to those investors to adapt their efforts and while they would have to react to new information, they would not have to allow for changing views of politicians as to the value or otherwise of the targeted climate stability objective.