A Critical Conversation on Climate Change ... - Green Choices

108 development dialogue september 2006 – carbon tradingEmissions Trading vs. Innovation: A Lesson Not Yet LearnedIn the US, pollution trading schemes, withtheir bias toward cheaper reductions, havebeen unfriendly to more interesting, radicaland sustainable types of technologicalchange that require long-term, broadrangingefforts.Even the better-designed US pollutionmarkets, while encouraging certain technologicaladjustments, have provided fewerincentives for fruitful innovation than,say, performance standard programmes ofidentical stringency with no trading. Bylowering rather than raising the cost ofobeying pollution laws, they have tendedto take advantage of differences amongtechnologies that already exist for a particularpurpose more than to stimulate thedevelopment of new or more broadly effectivetechnologies. They improve currentstate-of-the-art technology ratherthan lead to a new state of the art.The US sulphur dioxide programme institutedin 1990, for instance, produced onlyone or two main technological responses.These involved old technologies. One wasscrubbers – a standard end-of-pipe approach.The program did produce some innovationsin scrubber design. But so had previousregulation, so these cannot be attributedto any special innovation-producing powerof trading. 157 Another technological changewas the wider use of low-sulphur coal. Butin addition to not being a real innovation,this change probably came about as a resultof railroad deregulation, not trading. 158The conclusions of Margaret Taylor of theGoldman School of Public Policy at theUniversity of California, Berkeley and hercolleagues are unambiguous:‘... the weight of evidence of the his toryof innovation in SO 2 control technologydoes not support the superiority of the 1990Clean Air Act (CAA) – the world’s biggestnational experiment with emissions trading– as an inducement for environmental technologicalinnovation, as compared with theeffects of traditional environmental policyapproaches… . In addition, traditional environmentalpolicy instruments had supportedinnovation in alternative technologies,such as dry flue-gas desulphurisation(FGD) and sorbent injection systems, whichthe 1990 CAA provided a disincentive for, asthey were not as cost-effective in meetingits provisions as low-sulphur coal combinedwith limit ed wet FGD application.’ 159There was some tweaking of operatingprocedures – for instance, plants might runtheir less-polluting units more frequentlythan their highly-polluting units in orderto generate saleable credits. 160 But therewere no radical innovations addressed at,say, supplanting coal-fired capacity or reducingdemand and no innovation in technologiessuch as wind turbines, or conservationprogrammes that can reduce manydifferent pollutants simultaneously. Whatthe market encouraged, at most, wasshrewd use of existing technology to savemoney to meet an isolated standard for onesubstance, not the opening of new environmentalhorizons for society. 161The fact that the US’s sulphur dioxide programmeovershot its modest target in 1995may seem to show that trading stimulatedinnovation. In fact, what happened was thatcompanies wanted to ‘bank’ credits for futureuse in the next, more demanding phaseof the programme. 162 Little trading was in