How Cap and Trade "Works"

The WSJ (link from Mish) explains how cap and trade "works" in Europe:

Cap-and-trade programs exacerbate the problem because developed countries (where emissions are putatively capped) get credit for reductions from ethanol—despite the fact that their biofuels are generally grown in developing countries (where emissions aren't capped). So if Malaysians burn down a rain forest to grow palm oil that ends up in German biodiesel, Malaysia doesn't count the land-use emissions and Germany doesn't count the tail-pipe emissions.

In other words, it just shifts environmental destruction in poorer countries. If cap and trade passes, companies will be paid a huge incentive to produce pollution and carbon in developing countries. The best investment would probably be in carbon-producing industries, just as in the ethanol boondoggle, the best thing to buy was the major oil companies.

The problem is not that stopping pollution is a bad thing. As always, the devil is in the details. The bill's authors absolutely refused to take land-use changes into account. So the problem is not the stated intent of the bill, but the dishonesty inherent in it. It is just a hidden tax, and a way of screwing over little people in countries far, far away where we won't hear about it until the damage has been done.