# Cap & Trade and the Tragedy of the Commons

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## Main Question or Discussion Point

Is Cap and Trade a solution to the Tragedy of the Commons? Are there better solutions?

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chemisttree
Homework Helper
Gold Member
No. Cap and Trade will not help enough to lower CO2 emissions. The best estimate is that the Cap and Trade legislation in its current form will http://www.washingtonpost.com/wp-dyn/content/article/2009/05/31/AR2009053102077.html" [Broken] when all of the restrictions kick in. Is 4% of global CO2 even measurable? I don't think so. What is measurable is the from $1,600 to$6,800 (depending on whose numbers you believe) that US citizens will pay annually as a result of the increase in the price of goods that require energy and energy itself.

Not a good trade off IMO.

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I was not interested in cap & trade as it applies to CO2 emissions specifically but to the problem of the Tragedy of the Commons in general.

In the classic example of three farmers who share a plot of land and want to use the land to graze cattle, it is to each farmer's advantage to maximize the number of his cattle because he benefits directly from the number of cattle he grazes but suffers only part of the destruction that overgrazing causes. Typically the result is overgrazing and less production than had the farmers grazed fewer cattle.

If instead the farmers decided on a maximum number of cattle that can be grazed without damaging the land and distributed that number of cattle between them with the purchase and sale of shares, would the profits of each farmer be maximized?

CRGreathouse
Homework Helper
If instead the farmers decided on a maximum number of cattle that can be grazed without damaging the land and distributed that number of cattle between them with the purchase and sale of shares, would the profits of each farmer be maximized?
This is the famous Coase theorem. If there is no overhead associated with the shares the collective profit would be maximized.

Of course the Coase theorem doesn't address which parties will profit from the change.

Astronuc
Staff Emeritus
If instead the farmers decided on a maximum number of cattle that can be grazed without damaging the land and distributed that number of cattle between them with the purchase and sale of shares, would the profits of each farmer be maximized?
Perhaps in the long term, profits would be maximized, but not in the short term. It depends on the criterion of profitability and constraints.

Let's say that during the first year, the number of cattle are maximized in order to maximize profits, but then the damage done to the range land is such that food supply is cut in half in the second year. If the ranchers continue to maximize the cattle on the viable land, the land will likely be damaged and the productivity decreases, perhaps to the point where no cattle can be supported. But perhaps the farmers take their profits and go into some other business - like fishing or forestry.

Then compare this with an alternate system in which the number of cattle are adjusted to sustain the range land. Perhaps the number of cattle is 0.7, or 0.5 of the maximum number of cattle of the first year. The let's assume that the range maintains a constant level of productivity by regenerating. (This is more or less the scenario of migrating herds, i.e., the range regenerates in the absence of the herds)

One simply needs to compare the two (or more) scenarios to see over what period of time profits are maintained.

There is some thought that the raising of goats has contributed to the destruction of grazing lands in N. Africa and Middle East, i.e. too many goats were grazed, and now the grazing lands have been replaced by desert.

chemisttree
Homework Helper
Gold Member
I was not interested in cap & trade as it applies to CO2 emissions specifically but to the problem of the Tragedy of the Commons in general.
This makes absolutely no sense. Cap and Trade deals specificially with CO2 emissions, not some common resource.

Why don't you rephrase your question if you want to talk about cattle?

Astronuc
Staff Emeritus
I was not interested in cap & trade as it applies to CO2 emissions specifically but to the problem of the Tragedy of the Commons in general.
Are these really the same thing? Perhaps rephrasing as chemisttree suggested would help.

I suppose natural resources could be construed as being in the commons - somewhat. But then, in the US and maybe elsewhere, mineral rights are assigned to the land owners, unless the government or previous owner retains the mineral rights.

There is always the conflict of one or a few members of a society who wish to control (own) a disproportionate amount of land or resources. While the individual or few accumulate greater wealth, others may be disadvantaged. But that seems to be a historical trend.

I'm skeptical of cap & trade, because I see this as another vehicle for middlemen to get involved in a system that produces little or limited benefit while increasing the cost to the many.

Okay let's talk about cap & trade as it applies to CO2 emissions. I generally agree with your post #2 because it won't apply to all companies, just those in the U.S.. What would happen in the classical example if two farmers agreed to a cap & trade but the third farmer didn't?

On the other hand it doesn't only apply to CO2 emissions. It was applied to pollutants that caused acid rain and rather successfully. Wikipedia has a good description of Cap & Trade http://en.wikipedia.org/wiki/Cap_and_trade

The Tragedy of the Commons applies to many issues that are facing us today including greenhouse gasses. It seems to me very important to determine if cap and trade is an effective means for dealing with these issues before pursuing it as a solution. Superficially it appears that it is, IF all the important players can be included in the agreement. ( a very big if).

I'm skeptical of cap & trade, because I see this as another vehicle for middlemen to get involved in a system that produces little or limited benefit while increasing the cost to the many.
I agree. Cap and trade will only require companies to buy credits, not cut emmissions. The people trading the credits will make untold $billions. The thing that bothers me is that every discussion of moving towards clean energy now promises higher utility costs. Up until this past year, people made investments in solar and wind to save money (over time) and hopefully earn a small profit during sunny days. Now it seems we're being conditioned that we'll need to pay more to save the planet. Do they really think we won't notice the scam? Al68 Now it seems we're being conditioned that we'll need to pay more to save the planet. Do they really think we won't notice the scam? Yes. And they're right for the most part. Most people do buy into it. I suppose natural resources could be construed as being in the commons No, natural resources when privately held, are not in the commons. However the products of their use such as CO2 are. Cap and trade will only require companies to buy credits, not cut emmissions. Until the cost of buying credits is more expensive than than that of cutting emissions. The people trading the credits will make untold$ billions.
The real winners will be the companies that can find cost effective ways of reducing emissions and are able to sell their credits to pay for them.

The thing that bothers me is that every discussion of moving towards clean energy now promises higher utility costs. Up until this past year, people made investments in solar and wind to save money (over time) and hopefully earn a small profit during sunny days.

Now it seems we're being conditioned that we'll need to pay more to save the planet. Do they really think we won't notice the scam?
Maybe the problem is that we've become accustomed to getting energy at bargain prices. Do you think that current prices can be sustained long term?

Remember how in 2008 as the price of petroleum rose, people began scrambling for energy efficient solutions. Sales of low gas mileage vehicles tanked and investment in alternative energy sources increased. As soon as prices went down these efforts mostly disappeared. The higher prices are what drives the development of alternatives and there is an advantage to developing alternative energy sources before they're needed.

I think one solution is to build new houses with enough solar panels to supply the electricity for the house and amortize their cost over the life of the mortgage. I suspect that even now, if the higher monthly mortgage payments are compared to the lower monthly energy costs, the panels will be cost effective.

Astronuc
Staff Emeritus
Okay let's talk about cap & trade as it applies to CO2 emissions. I generally agree with your post #2 because it won't apply to all companies, just those in the U.S.. What would happen in the classical example if two farmers agreed to a cap & trade but the third farmer didn't?
Um - cap & trade systems are found in EU and elsewhere. It's mention in the Wikipedia article one cited. I've attended meetings with representatives of the Austalian government regarding C&T, and other national/international programs were discussed.

As far as I can tell, it's a bad idea as structured and for the reasons I mentioned. It's also not clear how effective it would be across national boundaries, particularly with the BRIC nations (Brazil, Russian, India and China).

There are already incentives to develop renewable energy sources, and many large and small companies are already moving in that direction. The five largest non-government oil companies: ExxonMobil, Shell, BP, Chevron, ConocoPhillips, have programs in biofuels, solar, and sustainable energy - without C&T. Others are following suit.

There are several companies, such as GE and Vestas, investing in wind turbine technology. Vestas just announced an order for 111 MW (37 units of 3MW capacity) in South Australia.

I think one solution is to build new houses with enough solar panels to supply the electricity for the house and amortize their cost over the life of the mortgage. I suspect that even now, if the higher monthly mortgage payments are compared to the lower monthly energy costs, the panels will be cost effective.
I'd like to share my personal perspective on Government mandates to protect the planet.

I grew up in an industrial city. We once enjoyed the highest per capita income in the United States due to a thriving steel and auto industry. During the 1970's, as the EPA cleaned up our air, the steel industry closed their doors and left. It was true, the air no longer had a smell of sulfur and alas the sky was blue - but unemployment was close to 20% and a lot of small businesses also closed. Many of the retirees lost health care benefits and many lost pensions.

However, I noticed that some of our neighbors that worked in the steel industry were still employed? I found out that engineers and other professionals were still working and that a new steel industry was developing in far away places like India.

Now, we were told in school that the EPA had to shut down the smokestacks to save the planet - but somehow it was okay to have smokestacks in India? My young mind could never process that information.

That city has never recovered from the recession of the late 1970's and early 1980's. Unemployment has never dropped out of double digits (and a lot of long term unemployed are no longer counted in the formula). Many former steel workers completed their careers bagging groceries or washing cars to support their families.

The auto industry has continued to stumble and sputter. When Packard Electric moved thousands of jobs to Mexico it looked like the end. When the van line shut down, same thing, every time it looks like the end, something happens to prolong the misery of partial employment at an over-built plant (they're building the Cobalt now - plant originally made the Vega).

Like the EPA mandates, Cap and Trade is another job killer. Cap and Trade is another insiders windfall scheme. Cap and Trade in it's basic form is extortion - pay or die.

Nobody wants a polluted planet.
Nobody wants to endanger species.
Nobody wants high cancer rates.
Nobody wants global warming to melt the ice caps or burn the farm lands.
Nobody wants to pay higher utility costs to benefit political insiders.

If solar and wind mean lower costs - everyone will want it.

I have a friend who manufactures 100% recyclable structural building panels made with a steel frame and a custom blend EPS. A 3,000 square foot house can be erected in about 4 days (basement, walls, floors, roof, doors and windows). The cost of materials is slightly less than conventional 2x4 stick-built. The labor savings are extra-ordinary.

There are several 8,000 to 10,000 square foot homes along lake Erie, built with these materials, that have never incurred utility bills of more than $150 in the harshest winter (or summer) months. The roof panels are rated at R-50 and the walls R-30 - before finishing. A large hot water tank is sufficient to supply heat in Cleveland, OH. A recent green project in Boston yielded some interesting results. The developer configured a 4 plex with solar panels. Boston is not the sunniest location in North America. There is a monthly fee for the meter - roughly$60. The only electric bill this 4 plex has ever incurred was in the first month before the solar panels were operational. The solar system is actually generating a ROI - running the meter backwards placing power on to the grid.

The total cost of the project was less than conventional construction estimates that were obtained (without the solar system).

Clean energy is possible without paying for "Trading Credits". Those dollars would be better spent re-invested in new technology - by the companies. If you want to clean up the utility industry provide tax credits for re-investment.

Astronuc
Staff Emeritus