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Tilting at Windmills

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December 5, 2007
By: Kevin Drum

CAP AND TRADE....Tom Friedman, in a faux "report" from the Iranian Ministry of Intelligence to President Ahmadinejad, notes that it's unlikely the United States will break its addiction to oil anytime soon:

True, thanks to Nancy Pelosi, the U.S. Congress decided to increase the miles per gallon required of U.S. car fleets by the year 2020 — which took us by surprise — but we nevertheless "strongly believe" this will not lead to any definitive breaking of America's oil addiction, since none of the leading presidential candidates has offered an energy policy that would include a tax on oil or carbon that could trigger a truly transformational shift in America away from fossil fuels.

This is flatly untrue. All three of the leading Democratic candidates have proposed cap-and-trade plans that auction 100% of their CO2 permits. This is, economically speaking, essentially the same thing as a carbon tax.

If Friedman is aware of this, he should say so. If he's not, he should get his facts straight. It's certainly arguable that there's not much chance that a cap-and-trade plan will become law anytime soon, but that's due to Republican intransigence, not because "none of the leading presidential candidates" has offered one. The Democrats have all done exactly that.

Kevin Drum 12:48 PM Permalink | Trackbacks | Comments (42)

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That's because the Omniscient Mustache sees none of the Democrats as "leading candidates." Maybe he thinks they're all tied for last place.

Posted by: junebug on December 5, 2007 at 12:58 PM | PERMALINK

The cap-and-trade plan is less efficient than a pure carbon tax. However, if it is 100% auction, you are right that the economic effects will be similar.
The difference is that taxing CO2 will lead to a shift away from coal long before it shifts away from oil, since cars, the main oil consumers, only emit about a third of the nation's CO2, and in any case there are cheaper reductions to be had in the electrical industry than in the auto industry. Merely taxing CO2 will not radically reduce our consumption of oil-that would require a separate gas tax.

Posted by: jamie on December 5, 2007 at 12:59 PM | PERMALINK

"It's certainly arguable that there's not much chance that a cap-and-trade plan will become law anytime soon, but that's due to Republican intransigence, not because "none of the leading presidential candidates" has offered one. The Democrats have all done exactly that."

And I, for one, can't wait for the Democratic Nominee to bravely tell the American people that she will impose a tax on their carbon emissions. I wonder if the plan will have any allowence for the CO2 that we exhale with every breath. LOL (and CO2 omitted).

Like the BTU tax that Bubba tried to impose, any such plan will be quickly forgotten once the nomination is sewen up because it's a loser issue for the Dems.

Posted by: Chicounsel on December 5, 2007 at 1:02 PM | PERMALINK

What? Friedman uninformed? Making shit up to support his preconceptions? Ranting about "social security deficits"?

I can't believe it!

Posted by: Gore/Edwards 08 on December 5, 2007 at 1:03 PM | PERMALINK

he should get his facts straight.

Not much chance of that happening, eh?

Posted by: tomeck on December 5, 2007 at 1:08 PM | PERMALINK

Carbon tax, vehicle gross weight surtax, engine displacement surtax, massive personal and corporate tax credits for investment in alternative power of any sort, massive government investment in geothermal, solar, and wind power generation. This won't make the world right, but it will at least help the U.S. cope over the short term (10-20 years) as oil becomes more expensive.

By the way, what was all that noise yesterday about oil prices?

Posted by: JeffII on December 5, 2007 at 1:11 PM | PERMALINK

"If he's not, he should get his facts straight."

Riiiiigghhttttt. From the man that gave us: "Suck. On. This."

Posted by: bubba on December 5, 2007 at 1:26 PM | PERMALINK

In 1974 - 33 years ago - we had an "oil crisis" that made a blip on the screen as far as alternative energies were concerned. A handful of people started using solar hot water collectors and a few more designed passive solar buildings. Now, three decades later we have a few more solar devices that actually produce electricity and a few cars that use "less fuel" but still USE fossil fuels. Our dependence on oil has us mired in an unwinnable war and now that the rest of the world has caught up to us in their appetite for oil, we are paying more than ever (please don't give me the inflation factored numbers - I started driving when gas was $.35/gallon).

WHEN will anyone have the guts to start doing something significant that can begin to repair the damage done to our planet and send those oil producing countries back to living in tents? In (9) presidential terms since 1974 (6 Republican and 3 Democrat) not one person has done or said anything to scratch the surface of responsible energy use. I am a life long Democrat raised by (2) hardline New Dealers but I have not seen any of those insightful Democratic candidates you're touting say anything of significance.

Posted by: lamonte on December 5, 2007 at 1:29 PM | PERMALINK

cap and trade is a complicated program that won't ever be very good.

It is too easy to make all sorts of claims to get credits that you don't deserve.

In fact, the idea that we might have a cap and trade system in the future is a HUGE incentive not to reduce CO2 (or whatever will be capped) now since you want as many credits as possible.

A cap and trade system will encourage people to INCREASE CO2 use now so they get more credits later.

We need a TAX.

Cap and trade is a poorly designed tax, PERIOD.

Posted by: neil wilson on December 5, 2007 at 2:00 PM | PERMALINK

To quote Atrios from just yesterday:

They Don't Know Anything About Anything

The complete absurdity of our modern system of punditry.

Posted by: low-tech cyclist on December 5, 2007 at 2:03 PM | PERMALINK

I agree with Neil Wilson's critique of cap and trade, which will be complex and inefficient. It falls far short of what a carbon tax could do to reduce CO2 and raise revenue -- either to allow other tax relief or to invest in alternative energy technologies. However, one Democratic candidate, Dodd, does advocate a carbon tax (as does Gore). Too bad all the candidates, Republican and Dem, aren't following his lead.

Posted by: Scott on December 5, 2007 at 2:04 PM | PERMALINK

Cap and trade is similar to but not the same as a carbon tax in effect. The biggest difference is that a carbon tax would actually affect gas prices by including their carbon emissions. A cap and trade under most proposals will affect only industry and power generation, so will do nothing to increase the price of gasoline and decrease our "addiction to oil." Nobody needs to buy emissions credits for personal automobile usage under a cap and trade.

Yet another reason why a carbon tax is better, and also another reason why a carbon tax won't happen.

Posted by: LLamura on December 5, 2007 at 2:05 PM | PERMALINK

Sorry Kevin - "That is flatly untrue." is flatly untrue.
There's a qualifier that you have to pay attention to in there.

since none of the leading presidential candidates has offered an energy policy that would include a tax on oil or carbon that could trigger a truly transformational shift in America away from fossil fuels.

As the plans offered stand, as I understand them, none fit that criterion.

Posted by: kenga on December 5, 2007 at 2:10 PM | PERMALINK

"A cap and trade system will encourage people to INCREASE CO2 use now so they get more credits later."

That is not an inherent property of the cap and trade system.

The best way to do a cap and trade system from the environmental perspective would be to determine how much carbon we want to emit each year and create that many credits for that year. They are then sold at auction and the market does its thing to allocate them reasonably efficiently over time. Anyone emitting more than their credits gets hit with a far more expensive penalty for their overage. Presumably you would start out with a cap nearly at current emissions and reduce from there so things have time to adapt.

The specification of a 100% auction cap and trade system necessarily excludes the idea of a cap and trade system where pollution rights are allocated to current polluters. If anybody got credits for free 100% of credits would not be auctioned by the government.

In contrast the best way to run a carbon tax from the environmental perspective is to determine how much carbon we want to emit then try to estimate the tax rate which will cause that amount of emission. Then as time goes on one would refine the estimate through experience. The tax would start out very small and be increased over time to reduce emissions.

So under cap and trade there is one point for non-environmental manipulation: the target. There will be pressure to make the target and thus the cap higher than current emissions. Under the carbon tax there are two: the target and the tax rate. There will be pressure to make the target too high and there will be pressure to make the tax too low to achieve it.

Politically you will also need to raise a tax every year for the foreseeable future under the carbon tax which is probably somewhat harder than lowering a pollution limit every year. Though both would be hard.

Posted by: jefff on December 5, 2007 at 2:19 PM | PERMALINK

"Nobody needs to buy emissions credits for personal automobile usage under a cap and trade."

No, the way you do it is make the fuel companies buy credits for the fuel they sell. We can safely assume that gasoline is going to be burned, so the credits are effectively wrapped into the fuel by its producer.


BTW a gross vehicle weight tax (especially one increasing faster than linear) is also an excellent idea, and for reasons beyond fuel use. Unnecessarily heavy vehicles are also wasting the resources used to produce them, more dangerous to other vehicles and pedestrians, annoying in parking lots, blocking sight lines when parked on streets, and increase road wear and tear (though really only at the level of non-passenger vehicles.

Posted by: jefff on December 5, 2007 at 2:25 PM | PERMALINK

Tom Friedman. That's funny!

He is a complete mustachioed doofus. But he has the requisite type of hate for Arabs/Muslims that panders to the readers/editors/publishers of the NYT, so he's okay!

Meanwhile, three seconds with google will show you that almost everything he says is incorrect AND a platitude, simultaneously. From the article:

"As you’ll recall, in the wake of 9/11, we were extremely concerned that the U.S. would develop a covert program to end its addiction to oil, which would be the greatest threat to Iranian national security"

The US consumes 1/4 of total world petroleum exports. China and India's shares are growing much faster than any US "energy independence" program could yield results.

Furthermore, Iran's own domestic demand is growing, while it's output is stalled. These trends are expected to cross one another in less than 10 years - Iran will become a net importer of petroleum.

http://www.pnas.org/cgi/content/full/104/1/377

Friedman the dumbfuck says: "First, 9/11 has made America afraid and therefore stupid. The “war on terrorism” is now so deeply embedded in America’s psyche that we think it is “highly likely” that America will continue to export more fear than hope"

And one has to laugh. He was, from the start, one of the biggest shrieking pants-wetter. Fuck you Friedman.

He blathers on: "Second, at a time when America’s bridges, roads, airports and Internet bandwidth have fallen behind other industrial powers, including China"

He's got to be kidding. China's economy is still about 35% subsistence agriculture, with huge swaths of the countryside without running water, electricity, and unconnected by paved roads. Yeah, they're growing super fast, and remarkably, but from a low base.

He thinks he's hit on an original "positioning" of his arguments - kinda leftie by extolling "energy independence", but still hawkish enough to keep his neo-con readers and publishers (a.k.a. "liberal" hawks) happy by couching it in the language of national security.

"Remove al Qaeda's funding sources - buy a Prius!"

Every single one of his columns is demonstrably, obviously false, AND stupidly simplistic at the same time. Reading the NYT makes you dumber.

Posted by: luci on December 5, 2007 at 2:25 PM | PERMALINK
se it's a loser issue for the Dems.Chicounsel at 1:02 PM
Some people did vote to increase their gas tax

...it was California's tax and spending measure, Proposition 111, that aroused the most attention. It doubles the state gasoline tax, from 9 cents to 18 cents over five years, and loosens the limits that have restricted state spending since voters approved Proposition 13 in 1978....

Perhaps one day even Republicans like you will grow up.

Posted by: Mike on December 5, 2007 at 2:28 PM | PERMALINK

jefff wrote: "No, the way you do it is make the fuel companies buy credits for the fuel they sell. We can safely assume that gasoline is going to be burned, so the credits are effectively wrapped into the fuel by its producer."

I agree that that's the way to do it, jefff, the problem is that no cap and trade proposal actually does it. If they proposed that, then the 100% auctioned cap and trade would be similar in effect to a carbon tax, but in practice they're going to leave the entire transportation sector exempt.

Posted by: LLamura on December 5, 2007 at 2:47 PM | PERMALINK

jefff wrote: "The best way to do a cap and trade system from the environmental perspective would be to determine how much carbon we want to emit each year and create that many credits for that year [...] the best way to run a carbon tax from the environmental perspective is to determine how much carbon we want to emit then try to estimate the tax rate which will cause that amount of emission."

We want to emit ZERO carbon.

As British author George Monbiot wrote this week in The Guardian/UK:

There is now a broad scientific consensus that we need to prevent temperatures from rising by more than 2C above their pre-industrial level. Beyond that point, the Greenland ice sheet could go into irreversible meltdown, some ecosystems collapse, billions suffer from water stress, and droughts start to threaten global food supplies [...] the new summary published by the Intergovernmental Panel on Climate Change (IPCC) [...] suggests that to prevent global warming from eventually exceeding 2C, by 2050 the world will need to cut its emissions to roughly 15 percent of the volume in 2000.

I looked up the global figures for carbon dioxide production in 2000 and divided it by the current population. This gives a baseline figure of 3.58 tonnes of CO2 per person. An 85 percent cut means that (if the population remains constant) the global output per head should be reduced to 0.537 tonnes by 2050. The UK currently produces 9.6 tonnes per head and the US 23.6 tonnes. Reducing these figures to 0.537 means a 94.4 percent cut in the UK and a 97.7 percent cut in the US. But the world population will rise in the same period. If we assume a population of 9 billion, the cuts rise to 95.9 percent in the UK and 98.3 percent in the US.

The IPCC figures might also be out of date [...] the panel admits that "emission reductions ... might be underestimated due to missing carbon cycle feedbacks". What this means is that the impact of the biosphere’s response to global warming has not been fully considered. As seawater warms, for example, it releases carbon dioxide. As soil bacteria heat up, they respire more, generating more CO2. As temperatures rise, tropical forests die back, releasing the carbon they contain. These are examples of positive feedbacks. A recent paper (all the references are on my website) estimates that feedbacks account for about 18% of global warming. They are likely to intensify.

A paper in Geophysical Research Letters finds that even with a 90 percent global cut by 2050, the 2C threshold “is eventually broken”. To stabilise temperatures at 1.5C above the pre-industrial level requires a global cut of 100 percent. The diplomats who started talks in Bali yesterday should be discussing the complete decarbonisation of the global economy.

As others have noted a carbon tax is simpler and less costly to administer than a cap & trade system and is likely to be more effective.

But both of them are only baby steps towards what really must be done: the complete phaseout of carbon-emitting fossil fuels within the next four decades (at most). The larger the reductions that can be achieved sooner rather than later, the better our chances of avoiding catastrophe.

Australian scientist Tim Flannery believes that eliminating all carbon emissions will not be sufficient to avoid "dangerous" climate change, and that we will have to draw down atmospheric CO2 concentrations to pre-industrial levels, which he believes can be done through large-scale reforestation, particularly in the tropics, and the use of char-based agricultural techniques.

Posted by: SecularAnimist on December 5, 2007 at 2:52 PM | PERMALINK

"We want to emit ZERO carbon."

Right now we probably want to emit NEGATIVE carbon to head off this global warming thing.

We could also use some ponies.


"I agree that that's the way to do it, jefff, the problem is that no cap and trade proposal actually does it. If they proposed that, then the 100% auctioned cap and trade would be similar in effect to a carbon tax, but in practice they're going to leave the entire transportation sector exempt."

So for some bizarre reason the major cap and trade proposals all exempt cars but the carbon tax proposals all include them...

That's wierd.

Obviously any system that exempts one of our major co2 sources is likely worse than any system which is more inclusive. I imagine many proposals exempt the co2 and methane from agriculture.

Personally I think either system could work given political will, and I think they are both easily efficient enough. What I don't like is misinformation about either of them. Just because somebody somewhere wrote up a bad cap and trade or carbon tax proposal doesn't mean that the ideas are inherently flawed.

Posted by: jefff on December 5, 2007 at 3:20 PM | PERMALINK

>cap-and-trade plans that auction 100% of their CO2 permits. This is, economically speaking, the same thing as a carbon tax.

ROFLMAO


Did KD just fall off a turnip truck?

Cap and trade is the old Vatican Indulgences game decanted into a new shell game: Buy your way out of Hell and cheap at the price!

Genuflect. Genuflect.

'For most of the 21st century I have been pointing out that offshoring is not trade, free or otherwise. It is labor arbitrage. By replacing US labor with foreign labor in the production of goods and services for US markets, US firms are destroying the ladders of upward mobility in the US. So far economists have preferred their delusions to the facts.'
Greenspan and the Economy of Greed
As the Empire Slips
By PAUL CRAIG ROBERTS
http://www.counterpunch.org/roberts09202007.html

The United States needs to slam the brakes on fossil fuel consumption. As if arresting climate change weren't enough of a reason for immediate and strong conservation measures, the end of oil may just force upon Americans a reality we have ignored for far too long: We cannot go on like this, pedal to the metal, asleep at the wheel.'

After oil supplies dry up, what's Plan B?
Extreme scarcity could be disastrous for U.S. economy
Erica Etelson
Sunday, August 26, 2007
http://www.sfgate.com/cgi-bin/
article.cgi?f=/c/a/2007/08/26/INF7RM3OC.DTL

Posted by: MsNThrope on December 5, 2007 at 3:22 PM | PERMALINK

In order to predict the result of a carbon tax we need to know the responsiveness (elasticity) of demand for all the activities in the myriad sectors that emit CO2 and the costs of switching to cleaner technologies. I am not an environmental economist but my guess is that these estimates are very rough. So getting the "right" carbon tax to achieve a certain CO2 target would be very difficult. A properly implemented cap and trade system would guarantee that the target is met.

Posted by: puzzled on December 5, 2007 at 3:28 PM | PERMALINK

I just realized Joe Klein and Tom Friedman are different people.

... Not that it matters much

Posted by: anonymous on December 5, 2007 at 3:31 PM | PERMALINK

There is no way to do anything effectual about either carbon emissions or dependence on imported oil if we make up our minds at the start that nothing we do can be unpopular.

Kevin Drum is hardly the only person who doesn't get that, but the plain fact is that the equivalency of a cap-and-trade system (the costs of which to consumers can be camouflaged) and a carbon tax (the costs of which are laid out in plain daylight for everyone to see) is a matter of theory, and theory only. In practice, a cap-and-trade system can be gamed -- right at the start, for one thing, by insisting that emission credits be given away rather than auctioned.

Cap-and-trade systems can work when the number of variables (e.g. the number of regulated pollutants, the number of sources, the number and kind of criteria used to measure whether progress toward the system's environmental objective is being made) is limited. Multiply the variables -- increase the complexity of the trading environment -- and you make the operation of the market exponentially more difficult to understand. You also make it much more difficult to police.

A relatively simple trading environment, like the one for sulfur dioxide created after the Clean Air Act amendments of 1990, can achieve a defined objective. More complicated trading environments, for example to regulate certain water pollutants, have proven much more difficult to establish, and their effectiveness with respect to improving water quality has not yet been established. A cap-and-trade regime for regulating carbon-equivalent air pollutants would be far more complex in practice than either of these.

A carbon tax, on the other hand, is something we know how to do. We know how to measure its costs; we even know how to offset some of the costs to the people least able to afford higher energy prices. We know that energy consumers respond to higher prices by seeking to use less energy and, where they can, seeking alternatives to the energy sources that cost the most. We don't know how large a carbon tax needs to be to stop or reverse climate change, but the core of that problem is the complex and poorly-understood nature of the climate change phenomenon itself.

We also do not know how to propose a carbon tax without making ourselves unpopular for doing so. It's a question of what one's priorities are. Cap-and-trade is not an unpopular idea -- because hardly anyone understands what the phrase means -- which is why the Democratic Presidential candidates have decided to embrace it. People will be all for cap-and-trade as long as it doesn't mean their air-conditioning bill goes up or their car costs more to drive.

But the plain fact is that reducing carbon emissions in any meaningful way is going to mean that people's air conditioning bills are going to go up and their cars are going to cost more to drive. I understand the political unattractiveness of saying that before the election and, well, tough. It's not my fault that painless remedies generally don't do much good, or that remedies the costs of which are disguised to get one through the election are unlikely to pass afterward in a form that achieves one's objective. The bottom line is that there is no way a cap-and-trade system for carbon equivalents is going to have the same effect as a carbon tax.

Posted by: Zathras on December 5, 2007 at 3:54 PM | PERMALINK
Kevin Drum is hardly the only person who doesn't get that, but the plain fact is that the equivalency of a cap-and-trade system (the costs of which to consumers can be camouflaged) and a carbon tax (the costs of which are laid out in plain daylight for everyone to see) is a matter of theory, and theory only. In practice, a cap-and-trade system can be gamed -- right at the start, for one thing, by insisting that emission credits be given away rather than auctioned.

No more than a carbon tax can be gamed by insisting on exemptions. Any policy can be "gamed" by some involved interest group successfully lobbying for tweaks in the implementation details that undermine the core purpose of the policy.

Pointing out that this is conceptually possible with a policy is somewhat pointless as an argument against the policy (if the proposed policy is specific enough on implementation details, you can fruitfully debate whether or not the details actually acheive the purpose or whether they have been compromised to serve some other interest, but that's different than pointing out that the general policy concept abstractly could be undermined, which is always true and therefore never meaningful.)

Posted by: cmdicely on December 5, 2007 at 3:57 PM | PERMALINK

Energy policy means the people don't want to face up to the only realistic policy, which is giving up big cars and conserving energy resources.

Posted by: Luther on December 5, 2007 at 5:21 PM | PERMALINK
After oil supplies dry up, what's Plan B?

MsNThrope, are you familiar with any of Mel Gibson's early films?

Posted by: kenga on December 5, 2007 at 5:31 PM | PERMALINK

"More complicated trading environments, for example to regulate certain water pollutants, have proven much more difficult to establish, and their effectiveness with respect to improving water quality has not yet been established."

I would expect cap and trade to work more poorly for problems that are more localized in nature.

The credit system would have to be much more complicated than it would be for something like CO2 or SOx. For SOx you want to avoid emitting too much in any region around the size of a US state. For C02 you pretty much only need to care about the amount emitted across the entire planet. It doesn't much matter to the environmental impact if C02 is emitted in India or Indiana (though there might be economic or political reasons to spread it out somewhat). CO2 also is released fairly steadily unlike, for example, solvents which might be dumped out in large batches at a particular stage in an industrial process. C02 also doesn't, at the levels commonly released, have immediate negative effects. This makes the credits very simple and highly fungible. "This certificate allows the user to emit 1 ton of C02 during 2009". CO2 is a better case than SO2 for cap and trade (or a tax).


At the opposite extreme is ground level ozone. Ozone is a highly reactive chemical that, down here near the earths surface will fairly quickly find something to react with. Unfortunately for us humans that something might be our bodies. The world can handle a heck of a lot of ground level ozone production with no real problems as it is shortlived, but dense human populations can create enough localized ozone to affect their own health and the problems manifest immediately. The credits to cover a situation like that would have to be much more complex. "This certificate allows the user to emit 1 gram of ozone on june 23rd between 0:00 and 6:00 pst in ozone control district #4 of los angeles california". Those credits are complicated and thus hard to trade and harder to enforce.

For water quality it would be about particular bodies of water, which are connected in complex ways, and some of which flow out to the sea making it a time based problem like the ozone, but some of which don't.

However I don't see that a tax would work either. It would have to be just as convoluted to have the desired effect. Localized problems just aren't as amenable to high level solutions like credits or taxation. A better solution to that sort of problem, it seems to me, is straight regulation. The government studies ground level ozone, identifies sources, and dictates solutions backed up with fines, inspections, court orders, and even jail time.


My main concern with the carbon tax is that for it to work every few years for the foreseeable future we (people who want to do something about global warming & general fossil fuel waste) have to get a tax increase enacted at a high enough level to dramatically reduce CO2 emissions.

Posted by: jefff on December 5, 2007 at 5:34 PM | PERMALINK

Lamonte

You are being unfair to President Carter.

He did a lot, including creating the Department of Energy. The White House was given solar water heating (Reagan ripped it down, and I am told the system is still working, 25 years later, heating the water for a college in that Sunbelt state, Maine).

Corporate Average Fuel Economy laws were passed on his watch, as well.

A lot of core R&D for wind power (which is now competitive with fossil fuel power) and solar research was done on his watch.

He wanted to do more, but he was blocked by Congress.

Posted by: Valuethinker on December 5, 2007 at 5:37 PM | PERMALINK

Jeff

As you probably know, the European ETS cap and trade system has been a failure.

Power companies have reaped a profit from their free allocation of carbon permits, and it's hard to show that CO2 emissions have actually fallen (I did see one MIT paper that suggested they might have).

The price then collapsed to essentially zero, when it was discovered that countries had over-allocated permits to protect their heavy industry. The system awaits new post 2008 trading rules.

The core problem with cap and trade is the political gaming. Nonetheless, I see this in the UK, that a new 'tax' is so unpopular, that it just won't be accepted. There is no public trust that the government will use that tax revenue in a fair way.

In the ideal world we would tax our carbon emission, say $100/tonne, applying the tax at the producer level (refinery, natural gas entry point into the economy etc.). We would then rebate that entire revenue in a per person dividend, a la Alaska. My elderly aunt who drives maybe 20 miles a week, and never flies anywhere, would be better off. I would be considerably worse off given my flying. The problem of 'fuel poverty' due to higher energy prices would be addressed at source: only a poor person who burns more than the average amount of fuel would be worse off.

But that much revenue is a temptation to the right (tax cuts for business! Income tax cuts to the people who pay the most tax!) and the left (new government programmes).

A similar problem of course occurs if the government auctions permits in a cap and trade, rather than awarding them to existing polluters.

So on balance, I'm for cap and trade, even though I accept the administrative complexities and political problems.

What we haven't really explored is what happens if $100/tonne isn't enough. What if it needs to be $1000? Human emission of carbon/ consumption of fossil fuels seems to be quite inelastic: world oil prices have risen 10 fold since 1998, and 3 fold since 2002, yet consumption has continued to grow.

On gasoline taxes the UK has gasoline taxes equivalent to about $3.50/gallon. We pay $7/gal for gas, you pay $3-3.50.

However the number of cars in the UK has risen by 25% since 1992 (25m to 32m) and vehicle miles travelled continues to rise. Yes our cars are more efficient, but not that more efficient: c. 30mpg I believe v. c.21mpg for the US fleet? And we have ultra thrifty diesels aplenty. Petrol taxes are not, in and of themselves, enough.

This suggests to me that there will need to be government regulation, to drive up average fuel economy and drive down CO2 emission.

I wonder if the same may be true of power plants, and in the end, we will simply have to mandate best efforts reductions in CO2 from fossil fuel plants ie force new plants (and eventually existing ones) to achieve, say, 80% reductions in CO2 emissions.

Posted by: Valuethinker on December 5, 2007 at 5:51 PM | PERMALINK

The best solution is to cut demand through conservation while doing tax incentives for non-carbon alternatives. I would raise CAFE more aggressively AND ration transportation fuel. Set up a "trade" system where people that don't drive or drive very little can sell gallons to the highest bidder. That way the target amount of fuel to be rationed is met and the cost doesn't have to go up for the first X gallons. But that's just me.

Posted by: Doc at the Radar Station on December 5, 2007 at 5:59 PM | PERMALINK

Also.. Family and friends can sell excess gallons to each other at whatever price they want.

Posted by: Doc at the Radar Station on December 5, 2007 at 6:09 PM | PERMALINK

Kevin: If Friedman is aware of this, he should say so. If he's not, he should get his facts straight.

Oh, you're adorable the way you pretend Friedman is an honest broker of ideas.

Posted by: anandine on December 5, 2007 at 6:17 PM | PERMALINK

Zathras wrote: "But the plain fact is that reducing carbon emissions in any meaningful way is going to mean that people's air conditioning bills are going to go up and their cars are going to cost more to drive."

The plain fact is that the cost of energy -- and with it people's air conditioning bills and the cost of driving their cars -- is going to increase anyway as oil extraction peaks and declines, with the post-peak oil becoming ever more expensive to extract, refine and distribute.

Not only do politicians need the courage to propose "unpopular" measures like a carbon tax, they need to stop pandering to the public about government "doing something" to keep gasoline prices low.

A relatively rapid but steady and predictable increase in the cost of fossil fuels is the best thing that can happen.

Government action to compel the internalization of all the costs of coal is essential -- not only the cost to society of the CO2 emissions but of all the other hideously toxic emissions from coal combustion, and the monstrous environmental damage from mining and processing coal. A carbon tax is one way to address this, but "traditional" environmental regulation of the coal industry with a strict "polluter pays" basis can also help to drive up the cost of coal, hastening the day when it is no longer competitive with wind and solar for electricity generation.

In contrast to the Bush administration which has been loosening regulations on "mountaintop removal", toxic smokestack emissions, and other atrocities of the coal industry.

Posted by: SecularAnimist on December 5, 2007 at 6:21 PM | PERMALINK

A few points to follow up on my post upthread:

First, thanks to those who responded. For the record, I am an advocate of market mechanisms like trading as a means of achieving environmental objectives at a lower cost than is possible using other tools. I think a cap-and-trade system could work, eventually, for some air pollutants related to climate change, and I have no objection to trying something on a small scale to see what the effects are and what problems crop up.

Second, to clarify: I neglected to point out in the post upthread that leading Democratic candidates' platforms actually specify a preference for auctioning carbon credits rather than giving them away. Maybe such a preference would be reflected in legislation passed by Congress, maybe not, and my post was more about the issue than any candidate's position on it. But I still should have mentioned this.

Third, to cmdicely's point: if a cap-and-trade system -- especially one implemented right out of the box on a national scale -- doesn't work you are likely to have minimal environmental benefit to go with all the confusion and acrimony about inequitable treatment. Even an imperfect carbon tax will reduce energy usage in some sectors. And reduced energy usage is where reductions in carbon equivalents have to start.

Jefff raises an interesting question as to the relative complexity of local and national environmental problems, and specifically the applicability of trading mechanisms to each. My point of view is that the key element in a successful market is information -- both buyers and sellers have to be able to make a rational choice as to what the value of the commodity being traded is. There are some watersheds in which this hurdle can be jumped, given only a little more information than we have now; in others, especially larger watersheds and those with many diverse nonpoint sources, the matter is more difficult. The assumption of cap-and-trade advocates on climate change -- that a new system of universal regulation of carbon equivalents from all sources can adequately supply the new market with all the information it needs as to what carbon credits are worth -- strikes me as wildly, giddily optimistic.

Now, in perfect candor, as a conservative a national program of regulation for every business emitting greenhouse gases doesn't thrill me from an ideological point of view. Just talking of the environmental consequences, for a moment, though, the number of variables we are talking about for a program on this scale is absolutely staggering. Leaving aside the politics, the core assumption of cap-and-trade advocates is that we know enough to design, implement, and adaptively manage a system like this. We don't.

Valuethinker returns us to the central political dilemma, which is that while cap-and-trade may not work we know a carbon tax will be unpopular. I don't like to point out problems without suggesting solutions, and I know I've done so here. At some point, though, we just have to decide how important we think this climate change business is. If it truly is a defining issue for man's relationship with the only home he has, it has to be worth taking some political damage. In this country we are used to cheap energy. If -- whether for environmental or geopolitical reasons, or for both -- our people can't continue to have it, the government has an obligation to take them into its confidence and deal with this fact directly. I have other reasons, unrelated to climate change, for favoring higher taxes on energy use. But even without them I don't think a position that climate change is a defining moral challenge, to meet which we need to take clever action that will produce "win-win" solutions and not inconvenience anyone, can be sustained.

Posted by: Zathras on December 6, 2007 at 1:12 AM | PERMALINK

Someone should tell Friedman that the US doesn't buy oil from Iran anyway

Posted by: PK on December 6, 2007 at 11:13 AM | PERMALINK

"This is, economically speaking, essentially the same thing as a carbon tax."

No. Not even close.

carbon taxes as superior to carbon cap-and-trade systems for six fundamental reasons:

Carbon taxes will lend predictability to energy prices, whereas cap-and-trade systems will aggravate the price volatility that historically has discouraged investments in less carbon-intensive electricity generation, carbon-reducing energy efficiency and carbon-replacing renewable energy.
Carbon taxes can be implemented much sooner than complex cap-and-trade systems. Because of the urgency of the climate crisis, we do not have the luxury of waiting while the myriad details of a cap-and-trade system are resolved through lengthy negotiations.
Carbon taxes are transparent and easily understandable, making them more likely to elicit the necessary public support than an opaque and difficult to understand cap-and-trade system.
Carbon taxes can be implemented with far less opportunity for manipulation by special interests, while a cap-and-trade systems complexity opens it to exploitation by special interests and perverse incentives that can undermine public confidence and undercut its effectiveness.
Carbon taxes address emissions of carbon from every sector, whereas cap-and-trade systems discussed to date have only targeted the electricity industry, which accounts for less than 40% of emissions.
Carbon tax revenues can be returned to the public through progressive tax-shifting, while the costs of cap-and-trade systems are likely to become a hidden tax as dollars flow to market participants, lawyers and consultants.

http://www.carbontax.org/issue.....and-trade/

I'm no fan of the Very Serious Mustache of Understanding, but it's Kevin who deserves the 'Wanker of the day' award here.

Posted by: freejack on December 6, 2007 at 2:41 PM | PERMALINK

kevin - just got to add my voice to the chorus here. cap and trade is not the same thing as a carbon tax - and our presidential candidates are probably going cap and trade as a political tool to buy off the greenhouse gas polluters.

please, please put in an update with a correction. we're never going to be able to generate the political will for a carbon tax if smart people like you are misinforming your readers.

Posted by: selise on December 6, 2007 at 3:45 PM | PERMALINK

our presidential candidates are probably going cap and trade as a political tool to buy off the greenhouse gas polluters

Agreed. What will happen is electrical bills will go up a LOT, the utilities will make more profits, and C02 emissions will not go down.

Posted by: Doc at the Radar Station on December 6, 2007 at 5:07 PM | PERMALINK

Zathras

Global warming is the defining problem of the 21st Century. Or to be precise, we won't know how bad the problem is until it is upon us: we have to act in anticipation of the problem, and then see in retrospect whether we did enough, too much, or not enough.

Because the downside case is very, very bad. Read James Lovelock for a feel for the downside case. Mark Lynas has rigorously surveyed the scientific literature on the consequences of each 1 degree C rise in temperature and written a very readable book 'Six Degrees' about it. A world more than 2 degrees C above our current is a very different world. A world 5 degrees C above our current is not one where we can sustain our current civilisation.

www.rollingstone.com/politics/story/16956300/the_prophet_of_climate_change_james_lovelock

http://www.marklynas.org/

There are known positive feedback loops in the climate system which the IPCC reports have ignored, because either we can't quantify them scientifically or the data is too new or because it was just too alarming for the nations signing (all 3 explanations apply to different degrees).

Whether you are a 'conservative' or a 'liberal' doesn't really have any bearing on this (in theory). This is the largest externality problem (other than nuclear war) that the human race has ever created for itself.

Conservatives accept government solutions which are not free market: think of any war. In terms of urgency and importance, this is an existential threat to Western Civilisation. What a conservative should be worried about is that we make use of the most efficient market mechanisms.


Over to Cap-and-Trade v. Carbon Tax.

This is a seminal paper by Weitzman (1974 I believe). One is quantity regulation, the other is price regulation.

I forget all the conclusions of that paper, but they are summarised in the Stern Review in Chapter 14.

www.hm-treasury.gov.uk/media/F/E/chapter14_harnessing_markets.pdf

The basic issue is sufficiently serious that we must recognise the policy issues. To wit, that distribution of outcomes matters. There is a price to stop global warming, and someone will have to pay it. In the long run, given the enormous adaptability of the free market economy and the human race, that price need not be as large as first estimates (better technology, changing consumption habits etc.). But in the short run, it's a very real price to scrap our entire existing coal-fired generating capacity, for example, and replace it with something cleaner, or to replace our 600 million cars with vehicles getting twice or more the gas mileage.

Quantitative rationing has the ability to formally restrict how much we admit, ie to match the economic policy to the dictates of scientific reality. Carbon pricing can't do that. That alone tips one towards 'cap and trade'.

With carbon taxes, we would be stuck in an interative process where we set a tax, find it's not enough (it's unlikely to be too much: oil prices have more than trebled, but consumption hasn't fallen) and then raise it. Again and again and again. I don't see that as politically practicable.

Posted by: Valuethinker on December 7, 2007 at 3:15 AM | PERMALINK

Doc

Note if electricity prices go up, there will be more consumption and less CO2 emission. But that's a secondary effect.

Your point is why I think, in the case of electric power, we are eventually going to solve this one by dictat.

In Europe, SO2 emission was not solved by 'cap and trade'. It was solved by telling the power stations to either implement scrubbers, or shut down. Costs were higher than the US (where there was a switch to low sulphur coal) but they were not impossibly higher.

So in the case of electric power, I think we are just going to have to set a deadline (I would propose 2028) by which time all fossil fuel powered stations will meet an emission standard which is 80% less CO2 than now ie we set the limit for all stations such that only a coal fired plant with carbon sequestration would meet them.

That's risky, because the technology to do that doesn't wholly exist yet. But all the piece of the puzzle (CO2 extraction from exhaust streams, CO2 injection underground, CO2 transmission over hundreds of miles) *do* exist.

And we would have to avoid the political compromise of the 'New Source Rules' which allow US utilities to 'repair' existing power stations and avoid best practice pollution control-- a significant scam. I think Southern Company now has a coal fired plant over 55 years old-- that's a lot of repairs.

The really difficult bit is that 80% may not be enough. It may need to be 100%.

Posted by: Valuethinker on December 7, 2007 at 3:21 AM | PERMALINK

What a bunch of whiners you "progressives" are. "Tax TAX more tax and then tax some more". And you Right Wing freaks are no better... The average Joe in the U.S. has no representation.

The problem with you liberal democrats and right wing republicans is that you find it impossible to set aside your extreme views in order to let any reasonable idea stand on it's own merrit.

You are the reason this nation will never be the great nation it once was.

Posted by: Twig on December 27, 2007 at 3:48 PM | PERMALINK




 

 

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