Yet despite the superficial resemblance, cap and trade isn’t really a free market. The number of permits is an arbitrary scarcity imposed by government fiat. In the real market, resource prices indicate genuine scarcity. ... But if the prices of oil, coal, and other fossil fuels explode because of a cap and trade program, this won’t reflect genuine economic scarcity.... This is no more a “market price” than if the government decided to sell people permits giving them permission to sneeze.
There's no getting around this. Bob very clearly claimed that paying higher prices due to government assigning emissions rights in a case where excessive emissions hurt others, does not reflect economic scarcity. This is wrong, as I have claimed before, because -- under the assumption that all of the climate science is in order -- CO2 emissions do, in the aggregate, cause others to forgo consumption. So there's a choice: either these people get to emit CO2, or these other people get to not be flooded, not have thermohaline circulation shut down, etc. Inability for both parties to engage the consumption patterns they both want, is exactly what is meant by scarcity (though some are confused by the fact that it's a different good for each party).
Lest we think his remarks were specific to a particular poorly-run assignment of atmospheric rights (and of course Bob has totally outlined his ideas elsewhere for what would be a valid division of the atmosphere, right?), he does us the favor of comparing it to sneeze permits.
In regard to that remark, Bob responded, after I criticized him:
This may have led some readers to conclude that I was saying the very nature of the situation rendered carbon permits as illegitimate property titles, the price of which could not possibly correspond to genuine economic scarcity. However, as Silas correctly notes, if James Hansen and the guys at [RealClimate] are right, then CO2 emissions affect others just as conventional pollution does. If one agrees that one can have property rights to a clean stream etc., then in principle one could have a property right to the atmosphere and this could spawn a market in which the right to inject CO2 into this property is sold.
He then goes on to defend, irrelevantly, his claim that cap and trade "is not a market solution", a term for which he seems to use a non-standard definition and didn't define. (Bob seems to have adopted Stephan Kinsella's tactic of switching which claim he's defending so as to make his opponents' points irrelevant. If that's not what he was doing, I apologize.) But of course, such arguments don't help defend the claim under dispute, on whether higher oil prices due to permits reflect scarcity. Even if Bob can successfully support the claim that cap-and-trade "is not a market solution", that still wouldn't mean the scarcity analysis is valid.
I welcome others to read the above links, and please tell me in the comments if you think Bob's original op-ed is correct about scarcity as written, or if you don't. I think that Bob did admit it should be corrected, and even if not, he should believe so. Because even if he really was just referring to the "too few" permits case, that still wouldn't save him: issuing too few permits would just mean that the higher prices now reflect "the fact that your CO2 emissions are causing flooding in the Netherlands, not just Bangladesh" (or whatever) -- that's still a reflection of scarcity, just in favor of a different adjudication of the conflict. (Interestingly, Bob has also often worried that governments would botch such programs by -- wait for it -- issuing too many permits, which makes his unintuitive clarification of his original remark all the more unexpected.)