Opinion

Felix Salmon

The realistic and the optimal ways to overhaul energy taxes

Felix Salmon
Feb 4, 2014 16:15 UTC

Back in December, Max Baucus, the chairman of the Senate Finance Committee, came out with a pretty bold proposal to simplify America’s energy taxes, and to focus them on a simple goal: that the US should emit less carbon. That should be a pretty easy thing to do, in theory: you just raise taxes on the more carbon-intensive energy sources, while not raising them, or even cutting them, on sustainable energy sources. Except that’s not the way the US tax code works. America, it turns out, doesn’t really tax energy at all: instead, it subsidizes energy. And the amounts of money involved are very large:

Under current law, there are 42 different energy tax incentives, including more than a dozen preferences for fossil fuels, ten different incentives for renewable fuels and alternative vehicles, and six different credits for clean electricity. Of the 42 different energy incentives, 25 are temporary and expire every year or two, and the credits for clean electricity alone have been adjusted 14 times since 1978 – an average of every two and a half years. If Congress continues to extend current incentives, they will cost nearly $150 billion over 10 years.

As a result, Baucus can’t simply tweak energy taxes; instead, he has to tweak energy subsidies. His proposal is a good one: he essentially consolidates all those 42 existing subsidies into two new ones — one for electricity, and one for transportation fuel. In both cases, tax credits get handed out in direct proportion to how clean the facility is. Once carbon emissions have reached 75% of their current level, the subsidy phases out.

Charles Komanoff, of the Carbon Tax Center, responded to Baucus’s discussion draft last month, in testimony to his committee. Komanoff’s paper is conceptually simple: he asks what the outcome would be if instead of subsidizing clean energy, the government decided to go ahead and tax carbon emissions directly.

The first big difference, of course, would be fiscal. Komanoff takes 2024 as his base year, and reckons that under the Baucus plan, the government subsidies will cost taxpayers some $39 billion in per year, in ten years’ time. A carbon tax set at roughly the same level, on the other hand, would generate a whopping $450 billion per year in fresh government revenues. That’s enough money to make the system progressive, rather than regressive: checks could be sent out to lower- and middle-class households to cover any extra expenses they suffered as a result of the carbon tax. The Baucus proposal, by contrast, is regressive: most of the benefits would end up flowing to the highest-income households with the highest energy use.

The other big difference is in carbon emissions. Here’s Komanoff’s chart:

Screen Shot 2014-02-04 at 10.52.13 AM.png

A carbon tax, by its nature, affects everything: it’s applied equally to every sector of the economy, and encourages energy conservation (turning your thermostat up a little in the summer, for instance) just as much as it encourages cleaner energy creation. Komanoff’s model assumes a carbon tax which changes exactly as the Baucus subsidies do. Baucus’s tax credits work out at about $55 per ton for eliminated electricity-related carbon, and $102 per ton for eliminated carbon in the transportation sector. Komanoff’s carbon tax is set at just those levels for those industries, and at the average of the two everywhere else; overall it works out at a high $78 per ton. (Which serves to demonstrate how generous the Baucus proposal is.)

The problem is that there’s no easy way to get there from here. Fiscal policy is path-dependent, and Baucus knows full well that it’s hard enough to take one group of subsidies and replace them with two new subsidies which go to the same industries and cost roughly the same amount of money. In the current Congressional climate, it’s downright impossible to take an existing group of subsidies and replace them with a brand-new tax. Doing that would be wonderful in terms of reducing carbon emissions, but it would generate so many squeals of pain from the energy lobby (not to mention Republicans who hate all new taxes on principle) that it would never even get as far as a vote.

President Obama has said that addressing climate change will be a top priority of his second term — but he said that it would be a top priority of his first term, too, and he did exactly nothing on that front in his first four years. I doubt that Komanoff’s testimony came as any surprise to Baucus: it’s a well known fact in Washington that a carbon tax would be an extremely efficient way of raising much-needed revenues, reducing US carbon emissions, and helping America achieve energy independence. But Washington is not a town which tends to embrace efficient or logical solutions. If we’re going to reduce carbon emissions any time soon, we have a much higher chance of doing so with carrots than we do with sticks. Even when the sticks are much more effective.

COMMENT

“America, it turns out, doesn’t really tax energy at all: instead, it subsidizes energy.”

On net dollar terms this statement is clearly false. We subsidize the generation of energy via solar, wind, and the transformation of energy via ethanol. The subsidizes offered to these favored power sources are dwarfed by the taxes paid by fossil energy producers and consumers.

Europe offers the carbon lite sources even more generous breaks while on net taxing energy even more heavily than we do in the states… hard to see what they get for their money aside from crushing electric bills and $7-8/gallon gas… god bless them for getting the ball rolling though.

5 of the 7 billion people alive on this planet owe their very existence to the fossil fuel industry… THAT is the real inconvenient truth.

p.s. to BenE… those new CAFE standards are a paper tiger… they are back end loaded and when congress wises up to the fact that they cannot be met they will just be torn up like the renewal motor fuels mandates are being as we speak.

Posted by y2kurtus | Report as abusive

Can Bloomberg change the planet?

Felix Salmon
Nov 1, 2012 22:57 UTC

tumblr_mct9qnE3Ph1qh3465o1_1280.jpg

Bloomberg — the man, the mayor, the corporation — has come out hard today on the subject of climate change. There’s the striking cover of this week’s Bloomberg Businessweek, with its no-nonsense message, along with an accompanying tweet from the editor, puckishly saying that it “may generate controversy, but only among the stupid”.

Paul Barrett’s cover story itself is absolutely first rate, especially when compared to the way that Justin Gillis of the NYT covers the same subject. While the two pieces are not all that far apart if you read them diligently, their tone is very different, and their headlines are worlds apart: the NYT plumped for “Are Humans to Blame? Science Is Out”. To give you an idea of the tone of the NYT piece, its final sentence begins with the words “Scientists say they believe” — a phrase which can be inserted before just about any fact, if what you want to do is turn it into a debatable opinion.

One of the problems here is similar to the debate about Nate Silver: individual events can rarely prove anything. If Silver says that there’s a 26% chance of Romney winning the election, and then Romney wins the election, that in and of itself says nothing about Silver or his model: the model does say, after all, that there’s a very real chance Romney will win. Similarly, global climate change models show certain weather events — like, say, flooding in lower Manhattan — becoming much more frequent. But they were always possible, and therefore denialists can always slither behind their “you can’t prove that this wouldn’t have happened even without climate change” argument.

The NYT sees that argument as insurmountable, while Bloomberg sees it as an important challenge to be knocked down, talking about how there are “more and more credentialed experts willing to shrug off the climate caveats”.

Meanwhile, the mayor himself, endorsing Obama for president, makes his most important concern very clear in the headline: “A Vote for a President to Lead on Climate Change”. Giving Obama an endorsement on the basis of his climate-change leadership is a bit like giving him the Nobel Peace Prize: it’s something done more for the sake of hoped-for future actions than for past ones. Both candidates have avoided the issue in their campaigning, although in the wake of Sandy, the Obama campaign could do worse than to run this clip, from Romney’s RNC acceptance speech, in its ads.

It does seem here that Bloomberg the news organization, with its stated aim of being the most influential news organization in the world, is making a concerted push to drive climate change much further up the U.S. political agenda. With Bloomberg the man is doing his part to help. Bloomberg’s third and final mayoral term has less than a year to run, and it remains an open question what he’s going to devote his life to when it’s over. He clearly doesn’t need to spend most of his time running Bloomberg the company, which seems to be doing fine without his day-to-day involvement.

Looking down Bloomberg’s own list of the world’s top billionaires, it’s easy to be struck by the fact that very, very few of them have the power or importance of the mayor of New York City. Bloomberg, the man, has shaped New York dramatically, just as he has shaped the world of financial information. He’s going to want to be equally important and influential after 2013 — and climate change might just be his cause. (Rather than urbanism, which was my idea back in 2008.)

The U.S. is one of the world’s biggest obstacles to real progress on climate-change issues, and the biggest reason why is that the American public really doesn’t care very much about it. If Bloomberg could change America’s mind on climate change, much as Pete Peterson has changed America’s mind on the importance of bringing down the national deficit, then at least climate change would be a live political issue rather than a Republican Party punchline.

In his Obama endorsement, Bloomberg talks about “the world I want to leave my two daughters” — he’s a man who genuinely aspires to changing the planet. It won’t be easy: indeed, the odds are surely against him. But even a small chance of getting something done is worth spending a few billion dollars on, given the enormous potential positive effect it could have on billions of people both living and not yet born.

COMMENT

Will Mayor Bloomberg back his stated belief by no longer taking weekend trips on a private jet? I can accept that none of us perfectly match our deeds with our beliefs, especially on issues requiring collective action, but his hypocrisy on CO2 is beyond reasonable.

Posted by realist50 | Report as abusive

Why fuel-economy standards make sense

Felix Salmon
Sep 12, 2012 14:04 UTC

Eduardo Porter has a very good explanation, today, of why it makes much more sense, from an economic perspective, to simply start raising gasoline taxes than it does to implement ever-tougher fuel-efficiency standards. But before we get to the meat of his argument, it’s worth correcting his numbers. Here’s his conclusion:

In Britain, where gas and diesel are taxed at $3.95 a gallon, the American automaker Ford sells a compact Fiesta model that will go nearly 86 miles on a gallon. In the United States, where gas taxes average 49 cents, Ford’s Fiestas will carry you only 33 miles on a gallon of gas.

This is an apples-to-oranges comparison on not one but two different levels. I’m not sure about the gas taxes, I think they’re correct. But the mileage figures are misleading. Yes, UK Fiestas are more fuel-efficient than US Fiestas. But not by nearly as much as Porter suggests.

For one thing, the mileage tests are different. The test you use makes a huge difference, to the point at which the 2025 fuel-economy standard of 54.5 mpg actually corresponds in the real world to cars bearing window stickers advertising 36 mpg. The US Fiesta is already there, or extremely close. On top of that, UK gallons, also known as Imperial gallons, are significantly larger than US gallons. (Which is why a pint of beer in the UK is larger than a pint of beer in the US.) As a result, 85.6 miles per Imperial gallon is 71.3 mpg in American. And only one expensive “ECOnetic” Fiesta model gets that mileage in the UK; the other ones go as low as 42.8 miles per Imperial gallon, which is 35.6 mpg in the US.

I’s hard to say for sure which cars are more efficient, because the tests are different. To be sure, any UK fleet will be more efficient than any US fleet, for three main reasons: the UK has smaller cars, with more manual transmissions, a higher proportion of which are diesel. These are consumer choices driven by high gasoline taxes, and that really makes Porter’s point for him: raise taxes, and people will automatically start driving more efficient cars. But let’s not kid ourselves that Ford could simply import UK Fiestas into the US and overnight start shipping cars getting 86 mpg.

Porter’s central point is absolutely right: there are two ways to reduce the amount of fuel that people use. The first is to make cars more efficient; the second is to reduce the number of miles that people drive. Higher gasoline taxes work on both fronts, while higher fuel-economy standards only work on the first. Indeed, at the margin they increase the number of miles people drive: since more efficient cars cost less to drive per mile, people drive further when they get more efficient cars.

Porter is also right that in countries with higher gas taxes, fuel economy tends to be much higher. But he’s not necessarily right that the higher gas taxes alone are responsible. Porter implies that the US only has fuel-economy standards just because “a tax on gasoline doesn’t stand a chance” of being passed. But the fact is that even countries with very high gas taxes have fuel-economy standards as well. And, guess what, they’re significantly tougher than ours, and they always have been.

economy.tiff

The fact is that the US has pretty much the lowest fuel-economy standards in the developed world, and it still will in 2025, even after the new standards are fully phased in. If US carmakers want to be internationally competitive, they’re going to need to develop more fuel-efficient cars anyway, no matter what happens in the US.

As a result, I really don’t buy Porter’s scaremongering about the cost of the higher standards:

According to the government’s analysis, the additional production and maintenance costs made necessary by the mileage rules will rise gradually to about $31.7 billion in 2025 — which will add about $1,900 to the average price of cars and light trucks. There are other costs, too. Some Americans will not be able to afford a new car. Profits of some automakers and dealers are likely to decline. Greater congestion will impose an added burden on health.

The idea here is that the average price of cars will go up over the next 13 years; it’s far from clear why that would decrease profits at automakers rather than increasing them. What’s more, it’s equally far from clear that the average price of cars would go up significantly less if the new standards were not put into place. The question isn’t how much cars in 2025 cost compared to cars in 2012; it’s how much cars in 2025 will cost under various possible future regimes.

And when Porter starts talking vaguely about the health burden of greater congestion, you know he’s grasping at straws. Auto emissions pollution was a problem in the 70s and 80s; it’s not a problem now, with today’s much cleaner cars.

The fact is that fuel-economy standards are a pretty good way of ensuring that carmakers can plan for a more fuel-efficient future, without worrying about competitors undercutting them with gas-guzzlers. If the US government ever comes to its senses and increases the gas tax, or if it — wonder of wonders — actually implements a broader carbon tax, then at that point you would have three different forces conspiring to make America’s fleet more efficient. You’d have the tax, you’d have the fuel-economy standards, and you’d have the general global increase in fuel efficiency.

Without new taxes, we’re down to two; and without new fuel-efficiency standards either, we’d be down to just one. And that’s dangerous, because the US market is big enough that at that point there’s always a risk that we could replay the era of SUVs and Hummers, with manufacturers of small, efficient cars running a risk that they might get crushed if oil prices fall.

Fuel-efficiency standards are a way of preventing car companies from being forced to hedge their bets by working on gas guzzlers as well as efficient runabouts. As a result, those companies can take the money they’d otherwise spend on developing six-ton monsters, and invest it instead in the efficient cars of the future. Everybody wins, and the cost — contra Porter — is negligible. He’s absolutely right that higher gas taxes are a very good idea. But that’s no reason at all not to implement higher fuel-economy standards as well.

COMMENT

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Posted by methew | Report as abusive

The depressing politics of climate change

Felix Salmon
May 3, 2011 07:45 UTC

Why has the Obama administration failed utterly to get anything at all done with respect to climate change? The issue was a major part of Obama’s 2008 platform, but it seemed to disappear as soon as he got elected, and the consensus on the climate change panel today was that there’s essentially zero chance that a cap-and-trade bill will become law in the foreseeable future.

One of the reasons is party-political: “Republicans chose to equate climate change with taxation,” said Milken’s Peter Passell, “and a well-financed campaign made climate change denial almost a litmus test for conservative orthodoxy”. Obviously, if you don’t believe in climate change, or if you say you don’t believe in climate change, then you’re never going to be remotely helpful with respect to crafting any kind of bill designed to address it.

But more profoundly — and the reason that the Democrats don’t seem particularly eager to get anything done on this front either — there’s the fact that climate-related legislation is one of those things which will create a large mass of winners with relatively little present-day political clout (us, our children, and our children’s children), alongside a small number of losers with extremely deep pockets and extensive lobbying arms.

One of the best aspects of the great HuffPo investigation of the politics of swipe-fee reform was the way in which it detailed how the issue came to dominate Washington politics precisely because both sides are so well funded. (Essentially, it’s big retailers vs big banks, with the public in the middle.)

As a general rule, it simply isn’t possible to pass legislation where the many benefit but a few entrenched special interests lose out. There are exceptions, of course, but they tend to be extremely hard-fought (think the healthcare and Wall Street reform bills) and unique in many ways. What you really need, when it comes to climate change, is a powerful constituency which would benefit from a bill. And since the largest beneficiaries haven’t even been born yet, let alone started making campaign donations, we’re not about to find one.

For similar political reasons, I’m evolving away from my preference for cap-and-trade over a carbon tax, since a cap-and-trade system is certain to get gamed by special interests. Allocations will be given out for free, and carbon credits will end up being given to projects which don’t reduce carbon emissions at all: Bjorn Lomborg talked about a cottage industry in China where people will build refrigerator factories designed to use a particularly potent greenhouse gas called HDFC23, not to build refrigerators, but just to get billions of dollars’ worth of carbon credits when they don’t build refrigerators.

Indeed, politics in general is a really bad way of addressing the issues of global climate change. When politicians do implement something, it’s as likely as not to have a minuscule marginal impact and to cost a vast amount of money: think of Germany’s subsidies for solar panels, which work out at about $1,000 per ton of carbon emissions saved, or U.S. subsidies for corn ethanol, which arguably create extra carbon emissions when you take into account the deforestation they cause by people needing to grow food elsewhere. Expensive programs aren’t always enforced particularly well — see California’s plan to mandate zero-emission autos — but they do make it seem as though any attempt to address climate change is bound to be prohibitively expensive if it is enforced. And that’s a bad message to send.

What’s more, even if we did pass cap-and-trade legislation — or even an outright carbon tax — it wouldn’t necessarily do a huge amount of good: such a move might be necessary, but it’s far from sufficient when it comes to the big goal of preventing the buildup of atmospheric carbon to the point at which climate change becomes catastrophic.

We also need major technological breakthroughs, and possibly also insurance in the form of geoengineering — at least a few experiments with injecting sulfur into the stratosphere or evaporating more sea salt so that marine clouds become whiter and reflect more sunlight. They might not work, and they might have significant unintended consequences, but it’s looking increasingly as though Plan A when it comes to preventing temperature build-up — reducing global carbon emissions drastically — simply isn’t going to happen. So we ought at least to be thinking about Plan B, and endowing a few prizes for technological innovation on both fronts.

One message I did get from the panel is that individual attempts to minimize our carbon footprint are not going to make any real difference. When I see people suffering a significant loss of utility because they’re watching their footprint and refuse to fly, for instance, it’s pretty clear that the personal cost of their decision is much greater than any global benefit. Even if they act as a role model and persuade others to follow their lead, they’re still perpetuating the idea that individual actions count. And I’m not sure there’s any evidence for that. Especially when the single most carbon-intensive thing that anybody can do — having children — is the last thing that they ever will (or should) give up for the sake of the planet.

COMMENT

@VisualCarbon –

I studied physics and computer science at Cornell, as well as meteorology. My first job was as an intern at NOAA in Silver Spring, MD. Admittedly that was years ago, but do share your background. Your claims that we know everything there is to know doesn’t comport with my sense of science as a field of great caution. What do I know? Maybe the old ethos of scientists is gone, at least in certain fields.

Look, I am not a skeptic that humans are changing the climate. There is no question we are adding to the mix. I believe!! But to claim that we actually know what will happen in the coming century (“We have a model that is 100% accurate with all variable included. It is called the Earth. “) is a riot!

Our geological record is spotty but here are a few elephants milling about the room that make it hard to claim all variables are 100 percent sewn up:
* Carbon levels at around 390 PPM are well above the recent historical range of 200-300 PPM. But looking across just the last tens of thousands of years of carbon in this range we have had massive swings of 14 or 15 degrees C in relatively short periods of time with CO2 in its historic range. These are the ice ages. We have no idea what triggered each one, only that they are a positive feedback loop.
* Solar intensity is one of the most important variables of all (and yes it is significantly variable over thousands and millions of years) and it is completely absent from the geological record.
* A number of studies have attempted to look at carbon levels across geological time. The one thing that stands out is that historical carbon measurements are all over the map and no two studies come anywhere close to each other.
http://en.wikipedia.org/wiki/File:Phaner ozoic_Carbon_Dioxide.png
About the only thing they agree on is that atmospheric carbon was once much higher than today.
And there’s this: “the early Phanerozoic includes a global ice age during the Ordovician age combined with high atmospheric carbon contents ”

Apparently the bar at which scientists are willing to say they know things with certainty has gotten a lot lower. This is not helping public perception.

In Tamil Nadu (south India), one of the hotter places on Earth where I have been twice, they have three harvests a year. On the other hand, ice ages are very much more difficult to deal with. Evidence points to a present warming trend and evidence is that humans are a part of it. But I’m just not seeing the end of the world as we know it, at least on that front.

Exhaustion of much mineral wealth is what we really need to be stressed out about if we really care about the kiddies. That is not a problem on a 100 year time frame. That is a problem arising right now. The fossil fuel / carbon problem is solving itself because we are running out of them anyway as thisspaceforsale noted.

Nuclear based electric power seems to be the only source that scales up to the level we need. Absent a viable alternative of massive scale what discussion is there to have?

Posted by DanHess | Report as abusive

The Climate Desk launches

Felix Salmon
Apr 19, 2010 14:37 UTC

The Climate Desk has launched! It’s an exciting collaboration, and I’m pleased to be a part of it. My piece is one of two complementary articles; the other comes from Clive Thompson, and explores a lot of the ways that companies are looking to profit from climate change. I, on the other hand, look at corporate attempts to mitigate the downside of climate change — and find them few and far between.

One case in point can actually be found in Clive’s piece: ski resorts like Aspen have a business model which gets destroyed if they can’t attract lots of skiers during spring break in March. If March skiing goes away, as it well might, they could end up losing a great deal of money.

But what’s Aspen Skiing Company doing about it? Well, it’s lobbying Congress, of course, claiming that the ski resort industry “is as endangered as the Polar Bear” and that if people can’t ski in March, “we go out of business”. But this is a risk it’s very hard to hedge, and maybe all it can do, pace Thompson, is call for a cap on carbon emissions.

In any case, the Climate Desk is only just getting started: expect to see lots more great reporting on climate issues going forwards. And, of course, many thanks to everybody who responded to my blegs on this issue. You were invaluable!

COMMENT

Climate change is a global problem, and yet each one of us has the power to make a difference. Even small changes in our daily behaviour can help prevent greenhouse gas emissions without affecting our quality of life. In fact, they can help save us money!

Posted by ascoss | Report as abusive

How to compensate consumers under carbon pricing

Felix Salmon
Sep 28, 2009 02:18 UTC

Greg Mankiw, when it comes to cap-and-trade, is more or less on the side of the angels: he’s quite right that permits should be auctioned rather than given away to polluters. But is the tax code really the best way to compensate consumers for the higher energy prices they’re going to end up paying? Mankiw writes:

From the standpoint of economic efficiency, the price of carbon emissions should be passed on to consumers in the form of higher energy prices, so that consumers can make optimal decisions regarding energy consumption. Consumers should be compensated for paying these higher prices via cuts in income or payroll taxes. Those tax cuts would be financed by the revenues received from the auctioning of carbon rights (or, better yet, a carbon tax).

The first sentence is right, it’s the second I take issue with. If you cut income or payroll taxes, you end up giving more benefit to high earners than to low earners, and people who pay little or no taxes at all (eg the unemployed) get precious little benefit at all.

Better would be a flat refundable tax credit: the government essentially gives every taxpayer a flat amount each year, passing on the revenues it gets from the carbon auction.

Even that, however, would create inequities: three college roommates sharing a small city apartment would get three times the amount going to a single mother trying to raise three kids in the countryside — someone whose energy consumption would naturally be much higher.

There isn’t a simple and fair way of doing things — even channeling fixed payments through the energy companies themselves would unfairly advantage people who use say electricity and natural gas and heating oil. Instead, I fear that the fair method is going to be complicated, based on ZIP codes and size of household at the very least.

But the compensation should certainly be capped at no more than the average energy bill for the area. If people use less energy than the average, then it’s fine for them to profit from that. But there’s no reason to use a carbon-pricing mechanism to give high earners yet another tax break.

COMMENT

The dividend check is the way to go. And the tax on gasoline wouldn’t be $3 per gallon, closer to $0.10 per gallon. Carbon neutral just isn’t that expensive. See this study in New Scientist on affordability.
http://www.newscientist.com/article/mg20 427373.400-lowcarbon-future-we-can-affor d-to-go-green.html

Posted by JonHocut | Report as abusive

Dimmable LED bulbs!

Felix Salmon
Sep 17, 2009 19:47 UTC

Many thanks to Andrew Leonard and Alok Jha, who have discovered the Philips Econic. Here’s the relevant bit of their flyer (warning: 9.9MB PDF):

econic.tiff

Yes, that really does say “dimmable”. And Jha says that this is the “new bulb that will hopefully make the doubters shut up”.

When I moved into my new apartment in 2005, we ended up needing a huge number of 40W reflectors, all on dimmers, which between them consume an insane amount of electricity. What’s more, they need very frequent replacing, which is non-trivial. If I can just replace them with dimmable LEDs which last for 25 years, I will be a very happy person indeed.

COMMENT

I think the manufacturer is crazy to believe that the average consumer will pay anywhere near $40 for a light bulb, let alone when the light output is only 1/3 a true 60W bulb. And the introductory price gimic is just that. It’s far more likely that in 3-6 months time the LED will be considerably cheaper than its $40 “introductory price.” I’m all for saving energy, but I give this product an F for value.
http://www.imodernlighting.com

Posted by lucianaLucy | Report as abusive

Thomas Crocker’s weird arguments against cap-and-trade

Felix Salmon
Aug 13, 2009 14:55 UTC

There’s something rather odd about Thomas Crocker’s opposition to cap-and-trade and his support of a carbon tax instead: all of his arguments why a carbon tax is preferable to cap-and-trade are exactly the same as my arguments why cap-and-trade is better than a carbon tax!

Let’s take Crocker’s arguments one by one, with the proviso that they’re coming second-hand, via the WSJ, rather than directly from Crocker himself.

First, Crocker says that a carbon tax “would be easier to enforce” than a cap-and-trade system. But it’s hard to see why that should be the case: both of them involve measuring the same carbon emissions. It’s certainly easier to enforce when you measure upstream rather than downstream, but that applies equally to carbon taxes and to cap-and-trade.

Crocker then gets into the meat of his argument:

Mr. Crocker sees two modern-day problems in using a cap-and-trade system to address the global greenhouse-gas issue. The first is that carbon emissions are a global problem with myriad sources. Cap-and-trade, he says, is better suited for discrete, local pollution problems. “It is not clear to me how you would enforce a permit system internationally,” he says. “There are no institutions right now that have that power.”

Yes, cap-and-trade is better suited for local pollution problems than it is for global pollution problems. But that doesn’t mean that a carbon tax is better for global pollution problems than cap-and-trade is. Indeed, the opposite is true. In theory, once a number of jurisdictions implement a cap-and-trade system, carbon traders will start arbitraging the various different carbon permits, and we will end up with something approaching a global system. Carbon taxes, by contrast, are ever and always local. Crocker is right that a US cap-and-trade system wouldn’t necessarily slow global carbon emissions if China and India refuse to play ball. On the other hand, neither would a carbon tax. But at least a cap-and-trade system has the ability to scale into China and India.

But moving on:

The other problem, Mr. Crocker says, is that quantifying the economic damage of climate change — from floods to failing crops — is fraught with uncertainty. One estimate puts it at anywhere between 5% and 20% of global gross domestic product. Without knowing how costly climate change is, nobody knows how tight a grip to put on emissions.

In this case, he says Washington needs to come up with an approach that will be flexible and easy to adjust over a long stretch of time as more becomes known about damages from greenhouse-gas emissions.

Agreed, 100% — which is exactly why we need a flexible cap-and-trade system rather than an inflexible carbon tax. A cap-and-trade system can be tweaked much more easily than a carbon tax, both in terms of the level of the cap and in terms of the proportion of the permits which is auctioned off rather than given away. Crocker says it’s hard to adjust a cap once it’s in place — but he neglects to mention that it’s harder still to adjust a tax once it’s in place.

In the first instance, the important thing is to get something in place, which can then be improved over time. A cap-and-trade system fits the bill perfectly; a carbon tax, by contrast, doesn’t.

COMMENT

Cap & trade and carbon tax are failed concepts as carbon prices have been pathetic both in US ($ 3.5) and Europe ( Euro 8.0) during most of last year. CER has stopped issuing new carbon permits to prevent prices to fall sharply during the Bonn Conference. Australian parliament has rejected carbon trade, India refuses to consider it. I agree with those who say that Governments of U.S. and Europe have been fooling the people for last 15 years on climate change, delaying investments in Clean Energy on the pretext of huge revenues that will be generated by the Carbon Trade. One such show in slideshare.net “COP15: Bullshiting 15 years on climate change ” is an eyeopener.

Posted by Rachel Sigfreud | Report as abusive

Hummer: Too dirty even for the Chinese

Felix Salmon
Jun 26, 2009 13:54 UTC

China is likely to block the acquisition of Hummer by Sichuan Tengzhong:

Hummer, as an expensive, gas-guzzling sports utility vehicle, would not fit in with the government’s policy of encouraging energy-efficient vehicles, the radio said.

Could this be the beginning of the end of China importing carbon emissions from the US?

COMMENT

I find it fairly implausible that a sound Chinese government would give up this sort of opportunity. This would be the very FIRST live, non-dead auto company that would have acquired overseas.

Reading the article, the concern rather seems to be that the buyer does not have the requisite management experience. That can be amended by forcing it to merge with a bigger auto company.

Posted by Myles SG | Report as abusive
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