A "simple remedy" for global warming 7

Comments View as Flat

1. 

   Maywa Montenegro Posted 8:30 am
   19 Jul 2006

   Carbon Caps vs. TaxesI am no economist, so this is a question for anyone who might have more insight into the issue...
   How does Stieglitz' (and other's) proposal to levy carbon taxes compare with proposals such as Henry Waxman's to set up caps on CO2 emissions through a tradeable credits program. I would be interested in knowing what the strengths, weaknesses, and effectiveness of both approaches.
   Thanks!

   Permalink

2. 

   ffletcher Posted 10:18 am
   19 Jul 2006

   Tax or TradeI have had some experience in tradable credits for NOx control here in Southern California.  It took some time to craft but in the end it was one of the programs that has reduced smog alerts in LA from over 200 a year to less than one every three years today.
   However, it takes time to craft what can be traded.  CO2 will be particularly tricky because it is so complex.  I think we need to start with something simple, like the old fashion command and control technology that we have tried before and simply burn less coal, oil, and natural gas to make electricity.
   The coal tax method might work, but I expect it will mean we just pass along a tax to the end user and in the end we don't cut CO2 we just collect more tax that can go and support the war effort.

   Permalink

3. 

   Aaron Ostrovsky Posted 10:34 am
   19 Jul 2006

   Cap v. TaxI think an important basic difference between Waxman's trading system and Steiglitz's tax system is that one relies on market forces (Waxman) more than the other.  Trading internalizes some of the costs of producing CO2, such that produces think twice about whether emission is actually "worth it."  (This model is based on the highly successful acid rain trading program, but ffletcher's comment is spot on that this would be much more complex.)
   Steiglitz's approach seems to have no cap and therefore no actual market in emissions is created.  All emissions cost the same to every producer based on the tax.  If the tax is progressive, this could create incentive to emit less as you increase your emissions.  But the value of the emission would remain the same - i.e. no supply and demand market forces.
   Steiglitz's suggestion about the WTO is an old saw for international environmental advocates (I being one of them).  The WTO system is so tempting because of the unique success the WTO has enjoyed in getting member states to actually comply with its requirements.  But the system is first and foremost a trading system and it focuses on regulation of market distortions created by unfair trade, not environmental distortions.  There is room for environementally (and even morally) motivated trade restrictions but the extent to which those kinds of restrictions could operate is more murky than Steiglitz lets on.  (After all, the U.S. lost the shrimp/turtle case.)

   Permalink

4. 

   Kit Stolz Posted 2:53 pm
   19 Jul 2006

   WTO regulation: a bargaining chip?Thanks for the insight, Aaron. Since as you say Stiglitz doesn't seem to have a hard cap on emissions, is Stiglitz's suggestion then maybe more rhetorical than practical--a bargaining chip that other nations could use to win concessions from the US?

   Permalink

5. 

   Aaron Ostrovsky Posted 5:39 am
   20 Jul 2006

   Re: Bargaining chipHi Kit - I think you are bringing up two separate points.
   My comment regarding no actual emissions cap was in response to the commentator asking what the difference is between an carbon tax and a cap-and-trade system.  The comparison between the two is strictly a domestic issue - what motivates produces within a country to reduce emissions within a country, regardless of what nations do amongst themselves.  
   But Stiglitz's suggestion regarding the tax is exactly as you suggest (in my opinion) - a bargaining chip for other nations to coax (or force through a WTO dispute) into easing off the carbon emissions.  But as I said before, the WTO is not the panacea everyone outside the trading system hopes it is.  Stiglitz's idea that we subsidize carbon emissions in this country is true from a pure economics point of view.  But from a pure economics point of view, it is hard to find anything that isn't a subsidy.  (For instance, is France's health care system a subsidy for French companies?  Does our national park system unfairly subsidize the tourist industry?)  Whether it is an illegal subsidy under the WTO is a whole other question.
   And, as many nations have discovered, whether they are armed with a "bargaining chip" or a real threaty of a WTO dispute - no one plays hardball in international trade like the US.

   Permalink

6. 

   ffletcher Posted 7:12 am
   20 Jul 2006

   Progressive Carbon TaxAaron you remarked if the tax is progressive this could create incentive to emit less as you increase your emissions.  I am unsure what this means.  CO2 emissions are produced by people when they drive, by corporations when they drive, and by corporations when electricity is produced.  It would seem only the case of CO2 emission associated with driving by the general public that could be made progressive, as in the other two cases such costs would be a cost of goods and reflected in the price that would be paid by all for such goods or services.  Or do you mean that the more CO2 mass a single entity generates the per unit tax should increase, like $6 per ton up to a million tons, then $10 per ton for tonage between 1 and 5 million tons, then $20 per ton and so on?

   Permalink

7. 

   Aaron Ostrovsky Posted 8:44 am
   20 Jul 2006

   What I meant"Or do you mean that the more CO2 mass a single entity generates the per unit tax should increase, like $6 per ton up to a million tons, then $10 per ton for tonage between 1 and 5 million tons, then $20 per ton and so on?"
   Yes, like that.  I assumed that Stiglitz meant to tax major producers such as coal plants and auto-manufacturers but not individual drivers (this seems like it would be impossible unless it was a gas-tax).  But unless it was progressive in the way you described above, the first million ton would cost as much as the tenth.  Whereas in a cap-and-trade market system, as one producer buys more and more allowances, the remaining available allowances become more and more expensive due to scarcity.  Also, as has been demonstrated in the acid rain program, allowances can be "retired" permanently, either by being purchased by environmental groups or by the regulatory agency.  This is another perk that would not happen with a tax.
   But, again, I emphasize, cap-and-trade is good for a domestic market - it would be almost impossible to do on a global scale unless it is done through treaties such as Kyoto (but then you run into the enforcement problem Stiglitz advocates using the WTO to solve).
   
   

   Permalink