I keep hearing that a carbon tax is obviously superior to a cap-and-trade system because it is "simpler and more transparent."
This has always struck me as a classic case of petitio principii -- Latin for starting your argument on third base and boasting about your batting skills.
Would a carbon tax proposed and implemented by the U.S. federal government be simple and transparent? Perhaps, but at the very least that claim requires an argument. (Carbon taxers could start by pointing to an existing section of the U.S. tax code -- preferably related to a huge tax that affects virtually every economic actor in the country -- that exhibits those virtues.)
I can pretty easily argue the superiority of cap-and-trade if you allow me to begin by stipulating that the system will be perfectly designed and implemented. That's rightly seen as a foul play for cap-and-traders (look at Europe! look at Europe!) but it's no more legitimate when arguing for a carbon tax.
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Billhook Posted 4:38 am
16 Nov 2008
but there is an aspect of the case for "Cap, Allocate & Trade" which warrants wider discussion.
It is the matter of practical electoral politics and the responsibility for setting C tax levels to meet an emissions goal agreed by binding global treaty.
Had Obama been promising to get gas prices up over $4.50 to choke off demand significantly so as to meet that goal,
by how wide a margin would he have lost the election ?
And just what fraction of republicans candidates would honour problematic international treaties ?
OTOH, had Obama been promising to set up the auction of C emission-rights
to respect small businesses' weaker bidding power, might he not have won by a larger margin,
perhaps with the vital extra few senators to preclude filibusters ?
Just asking . . .
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Delay And Deny Posted 5:26 am
16 Nov 2008
Well, one thing that is not accounted for in these schemes is that all CO2 production seems neutral.
That is, if someone burns leaves in his backyard or a coal plant keeps people alive with heat during winter, both are putting CO2 into the atmosphere.
In the first, case, it couldn't possibly be regulated except with an outright ban.
In the second, you would seem to have to make allowances, or end up with crazy laws to reimburse people who live in cold places if the carbon tax makes their heat too expensive.
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vakibs Posted 6:04 am
16 Nov 2008
Let's be sincere, what we need is cap, this is what we should be talking about. How to convince the markets is another story. But the primary objective is to eliminate fossil fuel usage (I call this hard cap 1 : This is set with a fixed deadline, let's say 2030). A means of getting to that end is reducing CO2 emissions annually (I call this hard cap 2 : These are set for every year : by a maximum quota that a country/region can have). So what we want is cap&cap, not cap&trade.
Please note that the hard cap 2 doesn't automatically ensure hard cap 1. There are several countries which are non-signatories to the hard cap 2 : what is the guarantee that China/India will not burn coal after 2030 ?
This is why we should be pushing sincerely and independently towards hard cap 1. The hard cap 2 should be obtained as much as the markets agree for it.
Now what is the best way of motivating the market to fall in line with hard cap 2, (and to some extent, hard cap 1) ? A direct market mechanism to discourage carbon usage. (tax what we burn, not what we earn).
What is not a solution ? Carbon Trading. It is an expressly designed mechanism to help the markets get away from hard cap 2. The basic fault of this approach is that - we are setting the price of carbon in carbon itself (Fossil fuels, the unwanted monarch of our energy, dictate the currencies of every single country on this planet) . This circular nature will ensure that burning more CO2 is always profitable in the market. Carbon trading does not ensure (in fact prevents) the establishment of well needed infrastructure, new types of power plants and power grids, to help us step into a zero-carbon economy.
Let's think in terms of eco-dollars.
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BILL HANNAHAN Posted 6:22 am
16 Nov 2008
By calculating a best estimate of the damage caused by each emission and charging it to the source as a dumping fee, we create the optimum level of effort to reduce the emissions. As the science improves the cost is refined.
C&T is focused on CO2 only, whereas the dumping fees would include all externalities, sulfur, mercury, NOx, cadmium particulates etc. Including all externalities, not just CO2, removes an advantage coal would retain under (JavaScript must be enabled to view this email address)
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Anna Haynes Posted 6:34 am
16 Nov 2008
http://feeds.feedburner.com/grist/gristmill
(which is what gristmill.grist.org/rss redirects to)
is from over a month ago.
Emails to the webmaster don't seem to get through.
Please fix!
(and thank you, and thanks for Gristmill)
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Erik Hoffner Posted 10:37 am
16 Nov 2008
Erik
The Orion Grassroots Network: supporting grassroots groups working for conservation, justice, & more
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ssn139 Posted 11:14 am
16 Nov 2008
I don't understand why a well designed and enforced cap and trade system is not just a better way to just capping emissions.
Cap and trade, as I understand it, works like this: A government caps carbon emissions at 500 million tons a year or whatever you want to set your cap at. The government then auction off the permits to companies. Proceeds can be spent on public infrastructure, paying down debt, tax cuts, whatever you like.
Under this system, not polluting means you don't have to buy permits, which gives companies that don't use carbon-based energy the advantage. If a coal plant figures out how to sequester carbon cheaply, then they can sell their permits. The government makes sure that no one pollutes without a permit. 500 million tons are released in year 1.
The next year, the government sells new permits, but only 480 million tons worth. Since there are fewer permits, there will be more demand and thus the price goes up for polluters, creating more incentives to not pollute. Again, because the permits it benefits less carbon-reliant companies. At the end of the year, 480 million tons are released.
Rinse, wash, repeat, until you reach your deadline of no carbon emissions.
Mark
Learn. Discuss. Act.
http://www.thefiniteworld.com
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JMG Posted 3:16 pm
16 Nov 2008
fossil fuels are the issue;
that fossil fuels are from extractive industries;
that extractive industries are capital intense installations with a big footprint;
that it is virtually impossible to conceal industrial extraction and combustion of fossil fuels;
that even if it were possible to conceal extraction, you can verify whether taxes have been paid by the extractor when first downstream delivery is taken (i.e., make it punitive for buyers to take black-market [untaxed] carbon fuels];
then you should agree that it is straightforward to levy a stiff per-ton carbon tax on only a few entities, entities who are themselves unable to conceal their operations or move (you can't move extractive industries, which must be located at the source).
From there, once the tax is levied on these few entities, the market handles apportionment of the tax over the entire revenue stream, rewards the most efficient producers and distributors, and encourages conservation in the most straightforward way (through price) rather than in the most complicated way (through real-time computer modeling of the current carbon price on the carbon markets, with continuous adjustments in the "burn or buy" decision-making by millions of participants).
Anyone who has looked at the prospective carbon markets sees that it creates an enormous transaction cost that is a deadweight loss (as it neither produces anything of value nor absorbs carbon). Cap and trade is about continuing business-as-usual under a green cloak, as MBAs and modeling folks salivate at the prospect of constant arbitrage gaming for a new, little understood commodity, with opportunities for hedging on both sides (What if my company exceeds its allowances and has to buy offsets on short notice? What if I'm sitting on too many offsets and carbon emissions are declining, making my offsets worth less?)
As I tried to suggest in my "Coal is Different" draft essay, it's quite telling that the biggest push for a cap-and-trade system is from the financial sector, which is desperate to return to the glory days of 27-year old traders moving billions in notional currency around day and night to profit on the minute differences in value available in the global casino -- sorry, marketplace.
Further, there's no additional complexity needed to ameliorate the effects on the poor. We would need to address the hit that the poor would take through carbon taxes (just as we would if we used cap and trade, though it would be much harder to forecast with cap and trade, a much more dynamic system). So, simple enough--use the income maintenance strategies that we have now and adjust the thresholds. But there's nothing at all that says we have to try to do two things with the tax code (limit carbon AND cushion the poor from the effects of limiting carbon).
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Let's live on the planet as if we intend to stay.
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JMG Posted 3:26 pm
16 Nov 2008
With a carbon tax, we could tax imports just as hard as domestic carbon emissions -- we simply apply the carbon tax to the embedded energy represented by the imported goods (and the type of energy, based on the producing country's mix) and another component based on the distance and mode traveled.
Thus, while we would see domestic goods increase in price to account for the carbon tax paid upstream by the producer, we can also use a carbon tax to ensure that offshore producers have to participate (at least to the extent that they sell into the US market). We might even claw back some US manufacturing jobs.
The 5% Project
Let's live on the planet as if we intend to stay.
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Charles Komanoff Posted 1:29 am
17 Nov 2008
Simplicity-and-transparency is but one of a half-dozen ways in which a carbon tax is superior to cap-and-trade.
(The other five -- price predictability, immediacy of implementation, resistance to manipulation, universality, and easier maintenance of revenue-neutrality -- are discussed on this Carbon Tax Center Web page.)
A carbon tax will be simple because it will be levied upstream, at the first point where fossil fuels taken from the ground are sold to users -- power generators, pipeline distributors, oil refiners (or, for imported crude oil or petroleum products, at the U.S. point of entry). There are probably no more than 2,000 such points in the fifty states. Yes, prices will be affected for many millions of daily transactions, but that will occur through ordinary downstream market price-setting. The few thousand actual carbon-tax-payers will be entities that are already monitored and regulated for both tax and emission purposes.
A carbon tax will be transparent because the price will be clearly set and known in advance (assuming a ramp-up or phase-in).
Carbon-tax mechanics are discussed on another CTC Web page. Our analysis, written 20 months ago for a senior Ways & Means Committee member, isn't quite complete, but hopefully it will help convince you that the "simple and transparent" moniker does apply to a carbon tax.
-- Charles Komanoff, co-director, Carbon Tax Center
Charles
http://www.komanoff.net
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nancyhammond Posted 6:43 am
17 Nov 2008
OK--payroll taxes (Social Security and Medicare. Employee contribution: 7.65%
Employer contribution: 7.65%
Maximum taxable earnings: $102,000 for Social Security. No maximum for Medicare.
I'm not saying this is the best system (it's highly regressive), or that a carbon tax would necessarily be simple. But it is an example of a huge, pretty straightforward, tax.
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