20 Dec 2008

PE of Carbon Permits

"Political-economic" is the study of how politics and economics interact, i.e., how money (economics) influences power (politics) and vice versa. Put differently, PE is about lobbying and corruption.

[One of the best papers [PDF] ever written on the topic points out that developing countries are often in the "natural state" where politics and economics affect and interfere with each other. Developed countries, in contrast, are "open access orders" where politics may redistribute the wealth, but the market is unimpeded by political interference. There are, of course, many "natural state" moments in developed countries.]

So this post provides a good example of PE in Europe, i.e., the recent "compromise" arranged by French President Sarkozy over EU emissions permits:
The compromise overturns contentious plans to force the power sector to buy all of its emissions permits in the EU's mandatory emissions-trading system from 2013. Instead, power plants and other emissions-intensive industries will only need to buy up to 30% of their allowances from 2013; currently they get all of them for free.


By 2020, the power sector will need to pay for all of its allowances. But sectors that can prove they are facing serious competitive disadvantages — as is claimed by the steel, cement and aluminium industries — can apply for exemptions to grant them up to 100% free emission permits, even after 2020.
So industries not only avoid buying 100% of their permits, but they may able to get ALL permits for free if they can show a "competitive" disadvantage.

One easy way to do this would be to set up an affiliate in a non-regulated country and then export back to the mother country at an "aggressive" price that would require that the State intervene to protect the now "vulnerable" domestic parent company. Pretty nice way to "help" oneself, eh?

Bottom Line: Politicians are very fast to "help" those who can help them ($). Unfortunately, those same politicians are screwing their citizens.