Getting Specific

During the superconductivity craze a few decades ago, one of the most accomplished physicists in the field used to joke that yeah right in a few years we will have superconducting carrots.

Now we will run our cars on spinach.

Tradable emissions permits are inferior to an emissions tax, generally speaking.

In fact, if the "carbon fuel permits" are handled in the typical way, this program amounts to a carbon tax plus a fuel subsidy. This is because, while producers/consumers have to pay for permission to emit carbon, they also get some amount of permits "for free" and that's basically a subsidy.

Gotta look more into the particular proposal though..

Now we will run our cars on spinach

If it's good enough for popeye, it's good enough for my civic...

I'm monopolizing the comments here, but I have to vent about this some more. The whole "cap and trade" thing is just a pile of crap. It's totally just a tax. People don't understand that because not many people take economics. But if you make people pay something for permission to do something, that's a tax.

The thing that throws people off is that "the market decides the price." But the market decided this price because you created this quantity of credits. If we knew the supply curve for dirty power, we could just set whatever tax achieves the desired pollution level, and poof, no one would have to trade emissions credits. Even if we don't know the supply curve, we can just set a binding rule that the tax must increase until the desired level is achieved.

The only advantages of cap-and-trade are political. Substantively, an emissions tax is simply much better.

If he's decided to back away from that as he goes nationwide, that wouldn't be a bad thing. Certainly, it's something we all deserve clarity about.

Wow, check out that tortured language. MY, I didn't know you could write in Japanese. ;-)

If it was a Republican, or Hillary, I doubt such a pro-warming policy would merit the double negative or the tiptoeing request for "clarity"...

(disclosure: I am also an Obama supporter...)

Hansen ex- of NASA gives us ten years, maybe nine now, and we are talking better targets on cap-and-trade? Whatever.

Noah: MY has made it pretty clear that he doesn’t care about specific policy commitments, and instead think it’s important to decide whether or not this President really would care about the issue.

I found the offerings pretty small fare too, and was annoyed that Obama gave ANOTHER speech this weekend saying “we need a movement” to affect climate change, while he offers piecemeal suggestions and glorified pork (clean coal, ethanol subsidies). In the meantime, people like Al Gore very much are leading a movement, and at least Dodd and Edwards give nod to that in their recent proposals.

Speaking of Obama, this is interesting. Looks like one of Obama's political patrons is a slumlord who wrote checks to Obama while his poor black tenants had no heat.

MK,

I'm really not sure why you think a GHG tax is substantively better than a cap and trade (the RFF report you link doesn't support that either). There are basically two differences between the two systems. The first is distributive: the tax imposed a double burden on polluters - once in the cost of mitigation and a second time in paying the tax. A cap and trade imposes just the latter burden on the polluters (or the same double burden to the extent the permits are auctioned). This makes cap and trade more politically palatable, which is not something to take lightly.

The second difference is, as you note, that the tax is set to price and cap and trade is set to quantity. The consequence of this is that if we fear a risk in getting the quantity wrong more than in getting the price wrong we should go with cap and trade and vice versa (environmental economists refer to this as the Weitzman Rule).

In any event, I would be thrilled if we imposed a GHG tax (because I'd like to see major polluters take on the double burden). But since from an emissions and efficiency persepctive the two are basically equivalent, I think politicians are right to push cap and trade as the more politically viable of the two.

I dunno, I think we have Hillary part II here. Another guy who people think is totally liberal, who actually isn't so operationally liberal.

Great, just what we need.

I probably was too curmudgeonly about cap and trade. But the RFF report does support the tax being better, unless I'm reading it wrong.

I mean, it's talking about CO2 emissions from coal plants which is entirely different from auto fuel. But the general point is that there's an output subsidy in there (assuming the credits don't get auctioned), which totally doesn't seem to belong. Why are we subsidizing output?

In your description, the tax is a "double" penalty, but I'd just say it's a single penalty, because assuming the company is rational, they practice mitigation because it's cheaper than the tax. It's not like there are emissions or behaviors that are doubly being taxed. But that's OK, that part is just a semantic difference.

You may be more in tune with the literature than I am though, so these may be standard ways to talk about this stuff. I'm just a casual observer with probably irrationally strong opinions.

BTW, on p33 of the linked article, the authors' economic model leads them to conclude that cap-and-trade yields 41% higher (obviously an approximation) economic costs than an emissions price. I am not yet sure about why, but it seems plausible that it may be because, with the subsidy, you are not encouraging conservation as much, so you have to subsidize clean energy producers to produce more, rather than get dirty producers to produce less.

i.e., perhaps it's just economically more expensive to ramp up clean energy production than ramp down dirty energy production.

The only way to reduce carbon based fuel consumption is to increase their marginal cost to consumers. Anything else is just smoke and mirrors. Americans say they "care" about a lot of things (budget deficits, environment, etc.) but the truth is the caring is predicated on SOMEBODY ELSE doing the heavy lifting. U.S. citizens and their pols are perfect matches.

MK,

What's going in that paper is that the authors are comparing a direct price for c02 (which includes both a tax and cap and trade, see page 2) to a tradeable performance standard (which is not the same as a cap and trade, see page 22).

But I may have come off as too strong as well. I prefer a tax to a cap and trade because 1) it's more efficient to tax pollution than labor, and 2) there is some work suggesting problems with price volatility in tradeable permit systems. The point was just not to let the perfect be the enemy of the good since both systems achieve the goal of reducing emissions.

I dunno, I think we have Hillary part II here.

I think that's probably true. But I don't think Hillary's so bad. I think a lot of people exaggerate her ideological differences with candidates like Obama and Edwards, when actually they're all pretty similar to Bill Clinton - free-market centrists with socially liberal tendencies.

It is thus my personal view that any free-market centrist with socially liberal tendencies is infinitely preferable to whichever corrupt corporatist crypto-fascist the Republicans decide to throw our way, and thus electability should be our chief concern, with competence coming in second and ideology a distant third.

Ahhhh, you're totally right. I was thrown off by the word "tradable" in "tradable emissions standard." It's like a "cap ratio and trade" rather than cap&trade.

Thanks for setting me straight! Overenthusiasm strikes again, alas.

What does "fuels that use less carbon" mean?

Somewhat off topic but it would be nice to know what Mr. Obama proposes to do about off-shoring. See attached link.

http://www.zeenews.com/znnew/articles.asp?aid=367350&ssid=52&sid=BUS

Posted by: mk on April 23, 2007 09:51 AM:

Tradable emissions permits are inferior to an emissions tax, generally speaking.

The citation that was given to say that one is infererior to the other "generally speaking" included both together under the general heading as a policy of "pricing emissions".

Posted by: mk on April 23, 2007 01:52 PM

BTW, on p33 of the linked article, the authors' economic model leads them to conclude that cap-and-trade yields 41% higher (obviously an approximation) economic costs than an emissions price.

No, they conclude that a tradeable performance standard (for example, the Obama fuel policy, or a mandate on electricity suppliers that they must emit no more than X units of CO2 per Kwatt hour, with those under the limit able to sell their surplus to those over the limit), is inferior to an emissions price, which can be achieved by either cap and trade or tax ... they do not distinguish between the two in their paper.

Cap and trade sets a price on a quantity emitted ... rather than trying to guess at the price that hits the quantity target, it sets the quantity target and allows a competitive auction market to set the price. It is not a tradeable performance standard ... that is something else.

The RFF paper also argues strongly for the optimal policy including a mix of emissions pricing and knowledge subsidy ... such as the Edwards policy, which sells (rather than gives away) emissions permits to raise $10b annually for R&D spending.

Indeed! Cap and trade is great! I just plain didn't understand what I was reading. Now I feel guilty my comment is still up there, but oh well, we'll survive.

Yeah the mix of options sounds good.

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