Those people are smart 11

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1. 

   naturescene Posted 1:30 am
   06 Mar 2007

   not so sureThe major downside in this paper of cap and trade is that it produces price volatility.  The major downside of the tax system is that it might not be set to the right levels to get proper emissions reductions.
   What is the goal here?  Isn't it getting the emissions reductions correct?  
   The cheating that Shaprio claims would be rampant with C&T systems can be fixed by a designation of buyer liability rather than seller liability - this gives buyers of the credits the incentives to make sure that the reductions are actually taking place.
   Shapiro assumes that if taxes are found to be too low, they can easily be raised.  How valid is this assumption?  Sounds like a starry-eyed pipe dream to me.  The political feasibility of raising taxes again and again lessens each time. Not to mention the sheer impossibility of a global carbon tax to begin with. Shapiro has made the classic Pigouvian mistake - there is no such thing as a market-perfecting tax because markets are dynamic.
   Shapiro is advocating abandoning an imperfect system, rather than learning from its mistakes, in favor of embracing another imperfect system.

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2. 

   Sam Wells Posted 2:31 am
   06 Mar 2007

   What would Milton Freidman say?The free market would be the best way, according to economists such as Milton Freidman (sp).  
   The problem is that the existing market is for "credits," which can be quite nebullous, involving complex banking and trading that that lead to (1) abuse of the system and (2) phantom credits that might actually be increases in emissions.  In other words, perhaps all carbon cradits are not created equal.
   I suppose that if the credit trading models were changed somehow to reflect "market use" rather than "reduction credits," I would be much happier.
   Anyone have any ideas?
   
   sammie
   
   Onward through the fog

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3. 

   naturescene Posted 3:37 am
   06 Mar 2007

   SameCould you elaborate on the "market use" vs. "reduction credits" idea, I might be able to comment if I understood what you were getting at.
   If not all carbon credits are equal, then an exchange market structure would not be the best way to go about establishing the market.  Either bilateral trades (with or without brokers) or a clearinghouse stucture would be more appropriate.  Transaction costs increase with bilateral trade stuctures, but it would also provide an opportunity for buyer liability that would address the phantom credit problem.  The clearinghouse (carbon bank) structure could also address the phantom problem by placing liability on the clearinghouse.

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4. 

   naturescene Posted 3:44 am
   06 Mar 2007

   the other problem with the taxWith a tax, revenues go to governments, which we are to assume will use the revenues to promote clean energy, etc.  But when has government ever been good at picking the best options as far as technology goes?
   Case in point:  If there was a carbon tax system in the US currently, those revenues would likely be funneled into the production of ethanol from corn.  Is that what we want?
   The cap and trade system leaves the investments into clean energy to market competition, which will ultimately offer better products and more choice than government ever could.

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5. 

   ltlf653 Posted 4:16 am
   06 Mar 2007

   watching out for wrongly claimed creditValid points on why the tax wouldn't fly, but the cap and trade scheme is pretty iffy, too. As someone who has purchased carbon offsets from a provider like NativeEnergy (that actually assures additionality unlike many others), I want to see a C&T system in place that makes sure "dirty" power companies can't claim the right to emissions reductions because they've been forced to turn down productino because of proximate renewable energy pproduction.
   Say I buy 200 tons of offsets. That helps build a wind farm (which wouldn't have happened anyways--i.e. additionality). A coal-powerered plant near by has to back off their production because of that wind farm. With this voluntary market, I can currently claim those reductions as my own. But I'm worried that under a regulated market, that coal-powered plant will claim the right to them!

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6. 

   Gar Lipow Posted 4:19 am
   06 Mar 2007

   Carbon taxes to government>With a tax, revenues go to governments.
   Not necessarily. Just about all advocates of a carbon tax these days offer distributing revenues from a carbon tax directly to consumers, the way some Alaska pipeline revenue is distributed directly to citizens of Alaska.

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7. 

   GreyFlcn Posted 5:01 am
   06 Mar 2007

   Feebates - Green Tax Shift - Tax and RewardInstead of the government holding onto a carbon tax, rebate it back into the market.
   Car companies who jump ahead get rewarded with fees taken from car companies who do not.  
   
   It continues to reward super-effecient companies for each additional ammount of effeciency.
   This concept is known as Feebates.
   
   http://en.wikipedia.org/wiki/Feebate
   I really like this concept because it puts together the focus of a carbon tax,
   
   together with the market mechanisms present in cap and trade.
   _
   California has a proposed bill they are looking to do on this:
   
   The Clean Car Discount Program
   http://www.ucsusa.org/clean_california/california-clean-c ...
   http://info.sen.ca.gov/pub/99-00/bill/asm/ab_0451-0500/ab ...

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8. 

   GreyFlcn Posted 5:20 am
   06 Mar 2007

   Wrong billHeh, oops I linked to something about thoroughbred horses before
   http://info.sen.ca.gov/pub/05-06/bill/asm/ab_2751-2800/ab ...

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9. 

   naturescene Posted 5:57 am
   06 Mar 2007

   stillgovernment holding onto the revenues isn't the biggest problem with the tax anyway.
   The biggest problem is that taxes will not be set at perfect levels the first time around, and any subsequent efforts to raise them will be met with a lot of political opposition.  Even if they do get raised, there is still no guarantee that they will meet desired emissions reductions.  
   That is simply why quantity controls are better than price controls when your goal is to reduce the quanitity of something.

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10. 

    drosenblum Posted 7:24 am
    06 Mar 2007

    Not so fast!The fact that a cap-and-trade system will aggravate price volatility is a major concern because that volatility will 1) discourage investments in energy efficiency and less carbon intensive types of energy production and 2) undercut the goal of obtaining carbon emissions reductions.  
    The supposed primary advantage of cap-and-trade -- that future levels of carbon emissions can be known ahead of time -- is actually quite speculative, since most cap-and-trade systems under discussion include a "safety-valve" for auctioning off additional carbon allowances if the price of allowances exceeds a predetermined level. What's more, certainty in future emission levels is of questionable value, since there is no agreed-upon trajectory of emissions for achieving climate stability and preventing disaster. The real target for which the U.S. must aim is to reduce carbon emissions as much as possible, and then more.
    A global carbon tax is more difficult to implement that a global cap-and-trade program? That's just not true!  Take a look at the experience with the Kyoto Agreement. And, take a look at Shapiro's discussion of the subject.
    As to the difficulty of raising taxes, the tax should be set now to increase steadily over the next ten years so that businesses and individuals have predictable and increasing incentives to reduce carbon emissions.  Will adjustments be necessary in the future? Perhaps, just as there might be a need to adjust carbon caps as we learn more about the precise reductions necessary.  Reducing caps or increasing taxes will have a similar economic impact and face similar political obstacles.  The carbon tax should be easier to adjust if, as we at the Carbon Tax Center propose, carbon tax revenues are used to enable progressive tax-shifting or are rebated to all Americans.
    Dan Rosenblum
    
    http://www.carbontax.org

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11. 

    naturescene Posted 9:52 am
    06 Mar 2007

    public choicePublic choice tells us that the small number of losers in the taxing scheme (businesses) will organize better and be more vocal than the large group of dispersed winners (the "public").  
    Although I firmly believe that the cap-and-trade is better than a tax, the basic economics do not favor one scheme over the other.
    However, I think the political economy argument falls to the side of cap-and-trade.  It's more feasible because it will get less resistance from businesses.  Politicians in the US are embracing the cap and trade system, maybe simply because of the language associated with it: markets, incentives, innovation.  
    The tax may work, if your ideal situation of rebates were to happen.  But the public choice analysis shows that this is pretty unlikely.
     So would the Carbon Tax Center support taxes, regardless of where the revenues go?  If so, why?

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