(Tradeable) Permits

The fact that you can correct for externalities with (tradeable/marketable) permits seems to be a consensus with economists. But considering the existing applications, the theory appears to be not common sense.

Example:

The EU/countries in the EU have implemented a Carbon Emission Trading scheme while nations within the EU continue with other regulation like promotion of solar/wind, etc. When the point of a permit trading scheme is for the market to allocate the efforts to that place where you can save CO2 most efficiently. The added regulation only distorts the permit market without actually helping to reduce the CO2 produced, as the amount of CO2 produced is set by the amount of permits issued. And by funding solar, you just make permits cheaper and increase pollution in another sector.

Another quirk is, that permits are grandfathered to companies to keep the prices down, when the gifted permits result in an opportunity cost of using them (since you could sell them at the same price), making the price rise at just the same rate as if the company had bought them. The only result of grandfathering being that it gifts money to established companies, distorting the market.

(Tradeable) Permits

The fact that you can correct for externalities with (tradeable/marketable) permits seems to be a consensus with economists. But considering the existing applications, the theory appears to be not common sense.

Example:

The EU/countries in the EU have implemented a Carbon Emission Trading scheme while nations within the EU continue with other regulation like promotion of solar/wind, etc. When the point of a permit trading scheme is for the market to allocate the efforts to that place where you can save CO2 most efficiently. The added regulation only distorts the permit market without actually helping to reduce the CO2 produced, as the amount of CO2 produced is set by the amount of permits issued. And by funding solar, you just make permits cheaper and increase pollution in another sector.

Another quirk is, that permits are grandfathered to companies to keep the prices down, when the gifted permits result in an opportunity cost of using them (since you could sell them at the same price), making the price rise at just the same rate as if the company had bought them. The only result of grandfathering being that it gifts money to established companies, distorting the market.

To address some further concerns in the comments:

If the amount of issued permits were to high this would still be an example of policy makers not understanding the theory of permits. The thing is, either you base your CO2 reduction policy completely on permits or not at all. If you issue too many of them, then they don't have an effect and the only reduction comes from other measures so the implementation of permits is bad. But if they are actually binding (i.e. there are less permits than people want to produce) then all the other measures have no effect as they only shuffle around where the CO2 gets produced. So the implementation of other measures is bad. In either case there seems to be a lack of understanding of how permits work.

And I also want to argue that there are not too many permits anymore, the surplus was due to the crisis in 2008. And while I would still argue that the amount issued is still too high, the price is high enough above zero, that a reduction of CO2 in one place would probably lead to an increase in a different place. But again, it does not really matter. The issue is, that they did not implement a theory in a way that it actually works properly.

The fact that you can correct for externalities with certificates seems to be a consensus with economists. But people seem to be unable to understand how they work.

The EU/countries in the EU have a CO2 certificate system AND other regulation (promotion of solar/wind, etc). When the point of a certificate system is for the market to allocate the efforts to that place where you can save CO2 most efficiently. The added regulation only distorts the certificate market without actually helping to reduce the CO2 produced, as the amount of CO2 produced is set by the amount of certificates issued. And by funding solar, you just make certificates cheaper and increase pollution in another sector.

Another weird thing is, that certificates are grandfathered to companies to keep the prices down, when the gifted certificates result in an opportunity cost of using them (since you could sell them at the same price), making the price rise at just the same rate as if the company had bought them. The only result of grandfathering being that it gifts money to established companies, distorting the market.

(Tradeable) Permits

The fact that you can correct for externalities with (tradeable/marketable) permits seems to be a consensus with economists. But considering the existing applications, the theory appears to be not common sense.

Example:

The EU/countries in the EU have implemented a Carbon Emission Trading scheme while nations within the EU continue with other regulation like promotion of solar/wind, etc. When the point of a permit trading scheme is for the market to allocate the efforts to that place where you can save CO2 most efficiently. The added regulation only distorts the permit market without actually helping to reduce the CO2 produced, as the amount of CO2 produced is set by the amount of permits issued. And by funding solar, you just make permits cheaper and increase pollution in another sector.

Another quirk is, that permits are grandfathered to companies to keep the prices down, when the gifted permits result in an opportunity cost of using them (since you could sell them at the same price), making the price rise at just the same rate as if the company had bought them. The only result of grandfathering being that it gifts money to established companies, distorting the market.