No carbon reduction program is a silver bullet 10

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1. 

   sunflower Posted 5:41 am
   06 Nov 2007

   Cap'n Trade and the Jolly RogerCarbon cap a coal power plant 10% and the owners are motivated to mix coal with 20% natural gas (no payroll tax reduction).  Carbon tax a coal power plant and the owners are motivated to replace coal with 100% natural gas (with payroll tax reductions).  
   Sucking up to coal capital is corrupt.  We need political courage now more than ever.

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2. 

   naturescene Posted 7:09 am
   06 Nov 2007

   Best - enemy of the good?The rent seeking behavior in a tax system has the potential to cause a number of economic distortions.  While such behavior also exists in C&T systems, the effects are likely to be distributional without economic distortions.
   Anyone telling you that one is hands-down better than the other (ahem Carbon Tax Center) is pulling one over on you.  The way I see it is that Cap and trade has the political momentum, so the effort should be spent on making that system better rather than trying to undermine it with a tax system that is also going to have a number of issues that must be dealt with.
   Check out Common Tragedies, the Resources for the Future Blog, and what they have to say on this issue.
   In theory there is no difference between theory and practice. But in practice...
   "Don't let the best be the enemy of the good, particularly when the best could be the worst"

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3. 

   kayser Posted 9:44 am
   06 Nov 2007

   Kommareddi's analysis is nonsenseAll of his points are either meaningless or apply equally to both cap-and-trade and carbon tax.
   The government is susceptible to lobbying from oil companies and coal companies and if the government is setting a price through a carbon tax, they'll be subject to these pressures.
   
   
   As you say, this is a problem for both cap and trade and carbon tax.
   We'll also need perfect information to determine the right price. How much will ensure companies don't just continue polluting? How much is enough to not hurt consumers?
   
   
   You also need perfect information to determine the right cap. How low must the cap get before you hurt economic growth for insufficient environmental gain? How low of a cap will hurt consumers?
   The government isn't the perfect analyst of what to do here. This is an area in which market forces can create better results.
   
   
   Right! For example, the government isn't the perfect analyst of, oh let's pick an example at random: how low we should set a carbon cap.
   I hope this guy understands that his statements are meaningless. Politicians need a misleading cover story for their actions; that's life. I just hope beneath that, they know what they're doing.

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4. 

   David Roberts Posted 10:13 am
   06 Nov 2007

   Kayser,The cap is determined by the best recommendations of scientists. That's the whole point. Once the cap is set, the rest is automatic -- the market is supposed to figure out how to get there.
   This is in contrast to a carbon tax, in which government must guess at what carbon price would yield the needed reductions, and how quickly to ramp up to that price. They will inevitably have to tweak the price repeatedly over the years, each one presenting a new opportunity for lobbying.
   You might not agree, but it isn't "nonsense."
   
   grist.org

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5. 

   kayser Posted 11:04 am
   06 Nov 2007

   The dispute is about what the goal isYou're assuming that the goal is to achieve a particular %age reduction in pollution. Given that goal, I agree cap and trade is more direct. However, I could just as easily say the purpose of a carbon tax is to properly internalize the externality-- i.e. to make people pay for future damages. If that is our goal, then the "scientists" who determine the right setting are now economists. The "market" now determines the appropriate amount of pollution given that everyone is paying their share for damages.
   If you believe that 80% reduction is an absolutely necessary goal, cap-and-trade is the preferred approach. If you believe that pollution is damaging but there is nothing really special about 80% reduction versus 90% versus 70% versus whatever-- if you believe that so long as people pay their share for damages the outcome is OK -- then a carbon tax is preferred.
   There are reasonable justifications to support cap-and-trade given this choice (for example, "maybe a carbon tax would underestimate the damages of pollution" or "since a carbon tax does not actually commit to redistributing money to the damaged party, it is not fair" or "most damages are outside the U.S. so the government's extra carbon-tax revenue doesn't help those people") but these reasons are not the ones given by Kommareddi.
   It would be a mistake to say that these two policies are aiming for exactly the same thing. Similar, but not quite the same.

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6. 

   Daniel Hall Posted 12:32 pm
   06 Nov 2007

   David,The cap is determined by the best recommendations of scientists.
   This won't be true in reality, nor indeed should it be.
   First, with regards to reality, the decision about any cap is inevitably going to be a political negotiation.  Consider Kyoto: informed by scientists?  Yes.  Determined by them?  Hardly.
   Second, the decision about what the cap should be is implicitly also a decision about how much it will cost to get there.  Even if we are agnostic about the precise relationship between a given level of reductions and its cost, the general link is uncontroversial: greater reductions will cost more.  (See IPCC WGIII.)  And in a democracy I think it is valuable -- necessary, even -- to have societal input on what we collectively are willing to pay.
   Thus unless we are willing to outsource the discussion of cost, it does not seem obvious to me that scientists alone should be deciding the level of the cap.  Such an arrangement might be preferable from the standpoint of climate protection -- but I posit it would be unwise if the goal is to create durable institutions that have broad societal support, arrived at through a democratic process.

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7. 

   David Roberts Posted 4:54 pm
   06 Nov 2007

   Daniel,"determined" was a poor choice of words. The pretense of politicians now pushing cap-and-trade systems is that science, not politics, will determine the target. For now, at least among the Dem candidates and Sanders-Boxer, that's true: far as I know, scientists generally agree that to avoid atmospheric CO2 concentrations greater than 450ppm developed nations have to cut 80% from 1990 levels by 2050.
   Of course it's only pretense -- in practice, science alone doesn't determine a target. Couldn't. How much climate change we want to avoid vs. how much we want to just deal with is ultimately a question of values, i.e., a matter of politics.
   I and many others think we will look back from the end of the 21st century and see that the transition to sustainability was a necessary, ennobling, and enormously beneficial undertaking. The idea that we should be timid about it, or slow it down, as though we're choking down a multivitamin, will appear quaint.
   Yes, we are all engaging in a democratic debate and trying to build lasting, resilient institutions. No environmentalist can establish a target by fiat. But why not enter the debate boldly, seeking ambition and commitment? Why bargain away something you think is desirable on economic, environmental, and humanitarian grounds?
   I don't think we're taking our medicine, I think we're Popeye getting ready to crack a can of spinach. If appeals to science get us started, then that's what it'll be for now.
   
   grist.org

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8. 

   trock Posted 8:30 pm
   06 Nov 2007

   for carbon tax, tax trade.Carbon tax vs. cap and trade.  One of the reasons that Cap and Trade has had the head start instead of a  Carbon tax is Cap and Trade is a program that a lawyer would love.  Most politicians are lawyers or have that thinking.  But to the engineer or businessperson, a Carbon tax would give me the goal that we have to meet and they'd work out the plan to get there.
   The problem for businesses is that the price for carbon could vary, and possibly vary greatly.  They would have the risk of making bad decisions and then put their company out of business for a mistake in carbon abatement that they made.  That type of problem adds to inaction on what may be very good projects, but with no cover for financial loss or bankruptcy, only safe more short term projects will be preferred, not good long term projects with risk.
   A carbon tax would give cover for the good projects, that the price of carbon can't go below a certain price or that some other company can't undercut their company's projects with money from the Trade part of the Cap and Trade.  The Cap and Trade is riskier to all energy investments.
   What's not always being said about Carbon tax is that it can be a Tax Trade, that at the time that fossil fuel taxes are increased, property taxes can be decreased.  What about a trade of a Sales tax on general products to a sales tax on only fossil fuels.   Eliminate the sales tax on cars and other purchases.  Tell a conservative we will have a consumption tax instead of income taxes.  He should be for that.  Then say it's a fossil fuel carbon consumption tax very gently.  Is he for it then?
   I wrote all that before I read Bloombergs speech and he said some of the same things.  Cap and Trade also carries the criticism that any money that americans bid for in the cap and trade could very well go to other countries.  Some americans are highly critical of that idea and would be less critical if the money stayed in the United States.

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9. 

   Sean Casten Posted 12:59 am
   07 Nov 2007

   Theory vs. practiceCouple points to add here:
   
   
   From a purely theoretical basis, there is no reason why a cap & trade system is any different.  One can set rules in either scenario so that the net effect on carbon pricing is the same.
   The world ain't theoretical.
   
   
   The latter point is key, and biases towards cap and trade (but not before at least making the point that the universe of possibilities is not limited to tax vs. cap & trade!)  Why?
   a) Taxes are much more subject to political manipulation.  We have experience with sulfur cap & trade regimes and the cap & trading methodology has proven to be quite robust.  As David points out, these systems create winners and therefore a political pressure to maintain.  A tax, by contrast can always be changed in the next electoral cycle.  So while they might theoretically place the same price on carbon initially, it is much easier to think about making long-term investments based on that price in a C&T regime than in one with a carbon tax.
   b) C&T lets markets work, taxes just set prices.  The reality that has dawned on every jurisdiction that has looked seriously at carbon is that there are a lot more low (or, indeed, negative) cost approaches to carbon reduction.  In a cap & trade system, as these approaches participate, they drive down the clearing price for carbon and everyone who says that the price would skyrocket looks bad, those who said otherwise look good and the system becomes self-maintaining from a political perspective.  (Again, see the price history of sulfur markets as an example.)  A tax, by contrast simply locks in a number that will ALWAYS be perceived as a societal cost.  It never allows us to get to a point where we acknowledge the economic benefits of carbon reduction because it isn't framed in a way that can do so - which gets back to point 1, since this just keeps the pressure up to remove.
   All that said, the devil in any system is in the details, and let's not lose site of the fact that a good carbon tax is better than bad cap & trade or vice versa.  As the old Jon Stewart line goes, "even a graph has a y-axis".  Getting those details right is ultimately vastly more important than just looking at an artificially constrained choice between C&T vs. tax.

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10. 

    Jon Rynn Posted 2:05 am
    07 Nov 2007

    But who would of thunk it......that a cap-and-auction would be used as a gravy train for oil and coal companies, by diverting the auction money to them instead of renewable energy projects?  Not even the most critical anti-cap-and-traders thought up that one, did they?

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