Thank you Kevin,

There is sense in the argument, there are markets and markets and yours helps within the confines of market-bases solutions. I do contest that 'markets are... the best way to efficiently allocate resources".

But... to add to your treatise, at present people who invest in renewable energy supply are currently rewarded with rebates (Renewable Energy Certificates), plus state, federal and local government rebates (varies here and there depending where you live).

However, if I were to insulate my home I get no such rebate or financial reward.

Our entire culture is built around supply-side solutions, not frugality. Ditto our economy.

As a first step towards rewarding those who choose to live frugally, this quirk needs to be corrected.

Another is a reversal of the normal step-down tariff rates - we ought to pay an increased premium as we use more resources, not less. Those who waste have to pay more, not less for that luxury. There are ways to do that whilst simultaneously helping those who are struggling financially to reduce their costs of living.

All that aside, market solutions have limitations. At some point government has to severely intervene in the market place - with stiff regulation and enforced pricing mechanisms. We can play around with markets all day, but those who pull the strings end up being in control and those interests do not allow rational market solutions to come into being.

This proposal sounds like a close cousin of the 'clean development' offset whereby the ecologically pure of heart (eg wind farm developer) earns a carbon credit. That is sold to a villain such as a coal fired generator who can then burn more coal. Can't think why but this doesn't reduce emissions.

A better system is a strict national cap (CO2 and equivalents) without such bogus offsets and with extra sweeteners like capital subsidies and feed-in tariffs. If Rudd was as passionate as his election promises a limited coverage version could be implemented from July 1st this year. Like GST there will be some learn-as-you-go. If a recession bites it may be an initial mild cap becomes redundant ie the slowdown made the desired cuts. If not it shows the economy could afford them.

What about China they'll all cry. Then refuse to sell them coal or tax their manufactured goods. Our conscience will be clear because at least we are making an effort and it could catch on.

Gecko,

Thanks very much for the support. The system we have designed will reward frugality no matter how you achieve it and it can accommodate stepped tariffs (with which I agree). The problem with rebates is that it rewards you for installing something not for reducing your consumption. In a perverse way things like buying green credits or feed in tariffs or rebates can increase consumption because it removes the guilt factor and people feel free to consume. We need a system that rewards frugality. That plus investing the rewards to solve the common problem is guaranteed to work. I have tried to explain a bit more about this and where the ideas come from at item 43 on http://johnquiggin.com/index.php/archives/2008/03/03/monday-message-board-101-2-3-2/#comments

Tasweigen,

The end result of carbon credits is meant to be the same but the details of the individual transactions at the personal level are quite different. One of the interesting things that has arisen from our investigation and design of the solution is that it is the bottom level transactions and how they are done that are critical. If you get the bottom trade transactions done appropriately then the result we want is an emergent property of the result of millions of individual transactions. The nice thing about it is that we can test it out on a small scale without interfering with all the other things like emissions trading and we can measure its effect because we will know where people spend their money and we know how much greenhouse gases they continue to cause to be emitted.

Gecko,

I have come to the conclusion that markets are an economically efficient way to allocate resources because of the work I have done over the years on resource allocation algorithms for NP hard problems (scheduling the Sydney trains, the travelling salesman problem, code breaking). We can get very good solutions to NP hard problems through iterative solutions like Tabu search and genetic algorithms. The way these work is to guess a solution then make many small changes to the solution and pick the ones that are the best. These are so called hill climbing algorithms.

Free markets use the same technique. A free market is one where you have a solution with a lot of buyers and a lot of sellers for a product. Each time a trade is made then ideally the buyer, the seller and the rest of the market gets some feedback and the "algorithm" iterates towards the best solution. However, you have to have a genuine free market with full disclosure, proper measures, many buyers and many sellers. We can only get approximations to this ideal but if we have it then I am confident we will get good if not optimal solutions until we get a different hill to climb. I think there is much to be learned from these algorithms in the way we organise our interactions.

Kevin ,
I think you are on the right track .
As i understand it there is a charge of $50 + to dump your old mattress in a city tip .

I bet that has a few looking at their new mattress warranties .

Whatever it is ,If it doesn't last long enough to be passed down to the kids in reasonable condition - don't buy it !

There is a system called Tradable Energy Quotas http://www.teqs.net/ A carbon target is set for a country and millions of tradable quotas are created online to equal the target. All people, (not companies) are given an annual quota.
When you purchase energy, you must also pay with quotas. The profligate consumer or company, must buy quota off the frugal energy users. A self regualting market is set up as all trades are in a central online pool.
The point is that there is strong personal insentive for the individual to save energy wherever possible. Note that all coal, oil and gas consumption directly relates to CO2.
Further, with a 20 year decreasing CO2 budget, the results are assured.
We need a system like this!