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2010-07-30

A simple way to reduce carbon emissions is better

Comments on David Hetherington “Market design may define PM's green legacy”, 30/07/2010, http://www.theaustralian.com.au/news/opinion/market-design-may-define-pms-green-legacy/story-e6frg6zo-1225898687883
While market design, if done properly, may overcome some market failures, it should be noted that the best way to deal may not be as that complex as David thinks or implies.

Carbon emissions, for example, represent a market failure and can be best addressed by simply levy a carbon emissions tax to reflect their true costs, as opposed to complex market designs involving carbon trading.

A key issue is what to do with the tax revenue. Given that it is the consumers who bear the ultimate costs of emissions trading, the best option is to distribute the revenue to every resident.

Another way to consider it is that people are the owners of the climate environment, so they should be compensated for the costs to it.

Why do we have to design complex things while in fact simple things can work better?

Let's not overstate the role of "market design" and adopt the most appropriate policy response for each case where there is a need.

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