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    California's Cap And Trade Policy Is Manipulation Waiting To Happen
    By News Staff | July 9th 2014 03:30 AM | Print | E-mail | Track Comments

    California leads the country in creating science policy by opposition; if Republicans are against it, California will pass it. Taxpayers are swimming in debt and wondering why they wasted $3 billion paying a bureaucrat $500,000 a year to redistribute money on human embryonic stem cell research, with nothing to show for it, and their landmark cap-and-trade system for regulating greenhouse gases  has led to 50 percent higher utility rates for consumers but has done nothing for climate change - all of America's drop in CO2 was caused by natural gas uptake in the rest of the nation.

    Now a new paper says the California system could be vulnerable to price spikes and market manipulation. Scholars affiliated with Berkeley say the system needs three straightforward reforms. The problem is that the organization that would have to implement the reforms, the California Air Resources Board, has engaged in fraud to get its authority increased. They grossly exaggerated pollution levels by 340 percent. It's no surprise that many of the co-authors making the recommendations are members of the Market Simulation Group that advised the Air Resources Board. 

    The recommendations make an overpriced, nonsensical system worse. The advocates recommend: (1) strengthening the new market's price collar—the so-called allowance price containment reserve; (2) allowing permits to be converted from one compliance period to another and; (3) providing more public information on emissions and emissions-allowance holdings. 

    There is a risk that perfectly legal price manipulation could occur if large emitting entities were to engage in arbitrage of excess permits in hopes of inflating the price, and then selling. To minimize risks price spikes and manipulation, the Air Resources Board would have to insure that it has a large enough reserve of permits for release whenever the price hits the ceiling. It should also allow emitters to pay a fee to be able to transfer permits intended for use in later compliance periods to earlier ones. 

    These measures would add up to "an unambiguous policy that credibly limits the maximum allowance price," the report says. Such a policy "is important to market stability and a strong deterrent to attempts at market manipulation."