I’ve just got across the theory in a talk with my supervisor. Again, simple is the best. This entry is for some some who are on the same page:
From the economics of climate change, I believe that Carbon trade will benefit the society eventually. That is consistent. However, the effectiveness of this scheme is modelled as a function of carbon price, which is not consistent at all (in either short term or long term). In fact, recent fall of EU carbon price has shaken AUS government’s faith in the policy.
This is an ironic that you will necessarily face if your policy is based on quantitative analysis of data. That’s why I prefer non-data quantitative reasoning such as in AHF model to consider this kind of policy.
P/S: Could the price be constant in long term if we can create a perfectly competitive market for carbon?