Kay on the CET
Business economist John Kay, who writes for the Financial Times, this week discusses the problems of the European carbon emissions trading market. He argues that any engineered marketplace, such electricity markets and the European CET, are bedevilled by:
- lawyers seeking to define away every possible contingency,
- lobbyists seeking to manipulate the rules in their clients’ favour, and
- academics, eager to create something perfect when “good enough” would do.
He concludes:
These general problems are found whenever attempts ar made to build economic policy on economic theory. They bedevil auction design, competition policy and market- oriented reforms in the public sector. The mantra of the government economist must be to keep it simple. If you cannot explain in two or three sentences exactly why and how a new economic policy will work, you can be confident it will have unintended consequences. As it has with the carbon emissions trading scheme.