A journalist of some renown called me last week to ask a question: would it be possible to do both a cap-and-trade program and a carbon tax? Al Gore famously urged that approach, but this journo had heard from other (reliable) sources that it's not possible.
My instinctive answer was yeah, sure, there's no reason you couldn't do it. (I mean, there are a gazillion political reasons it's impossible, but there's no technical or regulatory reason you couldn't do it.)
Is that right? Do any of you smart folk out there know of any reason you couldn't implement the two policies in parallel?
Climate talks timeline: From 350 to Kyoto to Copenhagen and beyond
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Comments
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ffletcher Posted 3:13 am
15 May 2007
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grobstein Posted 3:19 am
15 May 2007
You could set them up as alternative systems as proposed in the previous comment, on the theory that we don't have the information to do either approach perfectly. Not clear whether it's worth it.
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John McGrath Posted 3:37 am
15 May 2007
I think the effect would be to guarantee that, no matter what happened, the price of the market credits wouldn't exceed that of the tax. (If the market credits were $30/tonne, you'd just opt out and pay the tax, right?) But for the lucky people who jumped in to the market quickly, there would be plenty of opportunity to save carbon at prices lower than $20/tonne, so they could buy in quickly and resell their credits for a profit later.
But I'm no economist. I think I'd still favour the carbon tax alone.
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JMG Posted 4:14 am
15 May 2007
Also, all surface mass transit becomes free, paid for out of the revenue from the carbon taxes.
Speaking of which, I seem to recall a plan posted here that would do carbon taxing at something like $10 ton and then up in by that amount each decade until the reductions target is reached. That seems to guarantee failure, because it allows for continued growth in emissions while the tax is set too low, and doesn't allow for a fast-enough rampup to respond to that continued growth in emission.
I think a better idea would be to start much lower, but modify the tax annually using an exponential rather than a linear step, starting in 2009, where you start at only $1/ton but increase by an exponentially increasing amount so long as emissions are going up, and only increase by a linear amount each year that emissions decline.
So, as long as total emissions are rising every year, the tax schedule would look like this
Tax/ton C Increase from
Equivalent previous year
2009 $1 $1
2010 $3 $2
2011 $7 $4
2012 $15 $8
2013 $31 $16
2014 $63 $32
etc.
All imports pay carbon taxes at the dock/pipeline entry point based on global heating potential (for manufactured goods, chemicals, fossil fuels) or weight (bulk commodities like food). All incoming passenger jets pay the tax for the round-trip fuel consumption from the city of origin to the destination city. Cargo jets pay tax on the goods carried and for the fuel used in transport.
Probably, for 2009, we would have to use data from 2007 (i.e., was there an increase over 2006); for 2010, data from 2008, etc.
No increases once emissions start falling.
The point is to allow smaller steps with the bigger steps looming ahead, so that the business case is to respond aggressively NOW. Carbon reductions are like savings in the bank--the sooner you make them, the more good they do you. A slow, decade by decade increase basically allows emissions to keep increasing for a decade at a time.
I'm guessing we don't have to go past $31 a ton if we apply it fast enough, but by taking five steps to get there we allow for a smoother transition. In other words, the within the period of the next administration, we get a handle on greenhouse gas emissions and make the necessary response.
"An optimist is someone who thinks this is the best of all possible worlds. A pessimist is someone who is afraid that the optimist is right."
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Gar Lipow Posted 4:31 am
15 May 2007
As to a carbon tax. I agree with JMG that phasing it in wit increases every year, or ever two years makes the most sense. I don't remember anyone proposing decade long waits between increases, but that does not mean nobody did.
I would add one thing to any system. In addition to scheduled increases, I would include automatic increases that would occur in response to emissions dropping at a slower rate than whatever the target was.
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GtoeOne Posted 6:06 am
15 May 2007
"Regardless of how the allowances were
distributed, most of the cost of meeting a cap on
CO2 emissions would be borne by consumers, who would face persistently higher prices for products such as electricity and gasoline. Those price increases would be regressive in that poorer households would bear a larger burden relative to their income than wealthier households would."
The CBO noted that the proposed cap-and-trade allocation method "would increase producers'
profits without lessening consumers' costs. In essence, such a strategy would transfer income from energy consumers, among whom lower income households would bear disproportionately large burdens to shareholders of energy companies, who are disproportionately higher-income households."
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Gar Lipow Posted 6:11 am
15 May 2007
Regardless of how the allowances were
distributed, most of the cost of meeting a cap on
CO2 emissions would be borne by consumers, who would face persistently higher prices for products such as electricity and gasoline.
Which is why I keep hammering home that revenue from such a system needs to be rebated back to consumers. The net affect of the combined tax AND rebate would be slightly progressive.
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tidal Posted 6:25 am
15 May 2007
From the executive summary of Shapiro's first piece, he highlights the pro's to the carbon tax approach: Carbon taxes directly raise the price of carbon-based energy, imposing the greatest costs on those firms and economies that produce the most emissions. In this way, they create direct incentives to reduce these energy emissions and substitute cleaner forms of energy, until the cost of doing so is greater than the tax.
Carbon taxes do not create the price volatility and administrative problems
associated with cap and trade.
Carbon taxes embed or capture the costs of carbon-based pollution in the price of energy, potentially improving the overall efficiency of the economy.
Carbon taxes would offer a more effective way to reduce CO2 and other greenhouse gas emissions and provide more powerful incentives for the development of new, climate-friendly technologies.
Carbon taxes offer a more attractive policy option for many governments, including those in developing nations, because governments can use the revenues to reduce other taxes or to finance economic development or popular programs.
As a previous poster mentioned, each regime can do the job, but they are redundant. The existing tax infrastructure systems globally are, by and large, already in place for a carbon tax as well.
The caveat I mention is for things like "not cutting down the rain forest". In a pure carbon-tax regime, there would be no payback for this kind of conservation behaviour, although the carbon-savings are large (whereas cap-and-trade could easily accommodate it.) The theory is that you would use "negative" taxes for this, but I don't see how that mechanism would work...
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Gar Lipow Posted 6:33 am
15 May 2007
Of course in a lot of case you would not need to have a negative tax. Instead you could treat cutting a rainforest as huge carbon emission (including all the future carbon the rainforest would have removed, and tax that. But in cases of things like reforestation, and char-ag, then yeah you would need a negative tax. Just a refundable tax credit, actually quite a bit simpler the EITC. You document that have sequestered x amount of carbon permanently. You receive X amount of cash.
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tidal Posted 6:36 am
15 May 2007
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Gar Lipow Posted 6:41 am
15 May 2007
Since the wealthy use more energy than the middle class, and the middle class more than the poor, the result will be progressive. Not steeply progressive, but slightly progressive.
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Mentats Posted 11:38 am
15 May 2007
Bill Mentats
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Sam Wells Posted 1:45 pm
15 May 2007
If you want to reduce global warming, stop looking for taxes and credits and just stop wasting so much darn fuel and electricity. Let's take out aging and antiquated electrical distribution system, which manages to piss away 20 to 40 percent of the power sent down the transmission wires. That means a full third of the CO2 generated by electric power stations was wasted on heat, grounding, leakage, and other parasitic losses. The power generators have very little incentive to fix this transmission problem. Fix it.
Refineries? I almost hate to bring up that issue because one of the biggest jobs of a refinery is to turn unwanted carbon into CO2, like coking, flaring, and other operations. Give me a break! I understand that most refineries were built in the US for WWII and updated over time, but refineries are designed to MAXIMIZE CO2. Fix it.
It is so narrow-minded to simply go after the consumer when the lion's share of CO2 comes from huge multi-national energy corporations and the military. It is a feel good approach that will not work. All those SUV's are about 3% of the problem, and total US mobile sources account for about 14%. Do the math. /sammie
Onward through the fog
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ffletcher Posted 3:51 pm
15 May 2007
Now I would like to point out that on peak the losses can be large. I would agree that the losses during peak could be as high as 20% but not as large as 40%. The transmission grid is in sorry shape and resistance to new transmission construction is a serious issue. Distribution on the other hand amounts to upgrading current lines.
It is important that peak usage be limited. We must curb peak usage and reduce total peak demand. This means moving any loads that can be moved from the heat of the day to other times in the same day.
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eriqa Posted 10:16 pm
15 May 2007
In a sense, this would be "cap and trade" with the future.
It would provide cash flow toward building a sustainable transportation and energy infrastructure. On the other hand, since it would involve tricky calculations of additionality based on how much would have been used over 10 years or so without the project, it could be subject to manipulation.
Also, we'd have to set up a board to decide which projects should be approved, a la the Executive Board of Kyoto's Clean Development Mechanism - the mind reels at the politics!
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GtoeOne Posted 1:13 am
16 May 2007
Above is most likely what will happen, the other half of the discussion is what should happen. The biggest problem with a tax or cap and trade is the unintended consequence of driving up manufacturing costs, driving industry to areas of the world where manufacturing is not as efficient and having a net increase in energy used per unit. The obvious way to avoid this is to add another tax on imported goods to increase the cost and try and maintain jobs. But I don't think there will be any support for a double tax, one on energy and one on imported goods, because of the possibility of reducing the economy. Also arguing against the tax is the regressive nature of the tax. The poor spend a high percentage of their income on consumable goods not on stocks, bonds and real estate.
So the next idea is to fund the poor so they can buy more stuff, but here we make a complete circle, we drive industry to un-regulated countries, tax the goods as they enter the country and use the tax to pay people so they can buy more things.
Some of the ideas I like better are usage taxes, for example:
1. A monthly tax on large houses, anything over 1000 ft2/person in the house
2. Monthly tax on automobiles based on GVW
3. Tax on marine fuels
4. Slowly increasing tax on gasoline
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Billhook Posted 7:09 am
16 May 2007
there are so many design factors around the operatios of "Cap, Allocate & Trade" and of a "Carbon Tax" that I for one can't give any useful advice as to whether they may be incompatible
without some thousands of words of prior discussion.
Which discussion needs doing somewhere, but not here.
Below are some observations that I hope might be helpful in light of comments to date.
First, the "After-You-Claude" problem applies directly -
why would any nation take more than token action (welcome, but not itself significant)
unless all nations have agreed to accept binding commitments to their
"common but differentiated responsibilities" ?
The price of that agreement will be steep for the US -
of all nations it has both the greatest wealth and by far the greatest Carbon Debt.
(No, China's debt is not greater, it is far far smaller; China's annual GHG output may soon equal that of the US, although it has >4 times the population).
Given that the Washington regime has no sole patent on banditry,
we can be sure that other powers can and very likely will drive the hardest of bargains -
indeed some say that the last 15 years has been about who can ignore GW the longest.
From this perspective, and in light of unswerving US diplomatic pursuit (as far back as '95)
of emissions-entitlement trading as a central plank of a treaty,
we can surmise that once the treaty is in force the US WILL be buying large ammounts of entitlement on the global market.
What measures it takes within the US to constrain emissions are a US decision (there is simply no prospect of all nations accepting a single methodology within their borders).
It is worth noting here that, far from funding goodies in the US,
the proceeds of a national Carbon Tax would, undoubtedly,
go to purchase emissions entitlements from abroad.
Perhaps the starting point for internal US policy is the KISS principle
("Keep It Simple, Stupid" for those who need to know)
Under this outlook, there is the recognition that we have three sectors, Public, Business & Govt,
of whom the first are both inately doubtful of politicians' global schemes and are also ill-equipped to comprehend the subtle dynamics that will be in play.
Therefore, whatever the policy, in a sense, the simpler it is the better it will help win public credibility and strong voluntary commitment to ending fossil fuel dependency ASAP.
Neither C,A&T nor CTs offer any surety of social fairness - achieving that is up to the electorate, and the ethics of the politicians they put in power.
Here in the UK the relevant Govt minister has called for personal carbon allowances being given annually to all adults, which can either provide emission entitlement (e.g. when buying fuel) or can be traded in a public spot market for the going rate.
This would ensure the public is directly involved in the expense, and the profit, of fully transparent carbon trading.
As yet, this is the simplest, and most politically robust approach I've seen,
in that the annual budget is set by the global treaty, and good politicians cannot be blamed and ousted for its stringency (as they could for setting sufficient carbon tax rates),
besides which, the fact of trading under the treaty budget means that a binding limit is respected
(which ain't necessarily so under Carbon Taxes).
Personally, on the balance of foreseeable factors and dynamics, I'd reserve the use of Carbon Taxes for rather severe application to those individuals who persist in profitting from fossil fuel pollution,
specifically to the shareholders' profits from those energy corporations who fail to have better than 50% of their R,D&D in the Sustainable Energies by 2012.
Sorry this is so long.
Regards,
Bill
PS - Stuff "Renewables" !
"Battery-Chicken-Dung-Power" is Amoral (and is an abuse of Canis' relatives too).
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Billhook Posted 1:53 am
17 May 2007
above are quite a spread of viewpoints on the questions you posed us -
How about doing us the honour of responding to them with your thoughts on the issue ?
Regards,
Bill
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GreyFlcn Posted 2:47 am
17 May 2007
When you start diversifying things, and broadening them, enforcement and verfication becomes a nightmare.
_
Something which might be ideal is a carbon tax, plus a feed-in-tariff/netmetering for renewable electricity. And then a whole seperate certification system for carbon sinks, which can be purchased in lieu of paying the tax.
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Billhook Posted 7:52 am
17 May 2007
your post appear to imply that a Carbon Tax could fulfil its purpose in a poorly regulated market (which seems to me unlikely)
while by contrast the trading of emissions entitlement could not.
I can't see the logic of this.
Here in the UK, in a very closely regulated market, there is so much tax on road fuels that we pay the equivalent of almost $9 gl for deisel.
This has raised enough interest in fuel efficiency to get an average of over 35mpg (I think)
but this is simply offset by unchanged growth of vehicle numbers of over 2%/yr.
Given that US drivers don't have the UK's public transport options, and tend to have far longer commutes, shopping runs, etc,
what chance is there of politicians imposing a stiil higher Carbon Tax that is really effective ?
Just supposing President Edwards were to set such a tax to price gas at $9/gl
(which price utterly fails to constrain the growth of UK petrol usage)
then a. would he have any chance of a second term ?
and b/. would US motorists really noticeably stop driving ?
The is one of my main concerns with the Carbon Tax - that imposing it at a rate to be even partly effective is political suicide for the rare brave politician.
Regards,
Bill
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