Washington Post columnist Robert Samuelson has long impressed me as one of the most hackish economic columnists not associated with the Wall Street Journal and not named Ben Stein, but today's piece on cap-and-trade is dismally, embarrassingly stupid. Its essential premise is that consumers and producers of energy don't respond to price signals, something so incredibly, obviously wrong that even the dolt editors of the Post opinion section should have wondered what was up. Samuelson should be ashamed of himself.
Let's go to the videotape:
Carbon-based fuels (oil, coal, natural gas) provide about 85 percent of U.S. energy and generate most greenhouse gases. So, the simplest way to stop these emissions is to regulate them out of existence. Naturally, that's what cap-and-trade does. Companies could emit greenhouse gases only if they had annual "allowances" -- quotas -- issued by the government. The allowances would gradually decline. That's the "cap." Companies (utilities, oil refineries) that needed extra allowances could buy them from companies willing to sell. That's the "trade." In one bill, the 2030 cap on greenhouse gases would be 35 percent below the 2005 level and 44 percent below the level projected without any restrictions. By 2050, U.S. greenhouse gases would be rapidly vanishing. Even better, their disappearance would allegedly be painless. Reviewing five economic models, the Environmental Defense Fund asserts that the cuts can be achieved "without significant adverse consequences to the economy." Fuel prices would rise, but because people would use less energy, the impact on household budgets would be modest.
This is mostly make-believe. If we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions. If coal is reduced, then conservation or non-fossil-fuel sources will take its place. But in the real world, if coal-fired power plants are canceled (as many were last year), wind or nuclear won't automatically substitute. If the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences. Of course, they didn't forecast $135-a-barrel oil.
As emission cuts deepened, the danger of disruptions would mount. Population increases alone raise energy demand. From 2006 to 2030, the U.S. population will grow 22 percent (to 366 million) and the number of housing units 25 percent (to 141 million), the Energy Information Administration projects. The idea that higher fuel prices will be offset mostly by lower consumption is, at best, optimistic. The Congressional Budget Office has estimated that a 15 percent cut of emissions would raise average household energy costs by almost $1,300 a year.
This is just a fundamental misreading of the intent and probable effect of a cap-and-trade system. At base, cap-and-trade is about establishing a price for the right to emit carbon because unpriced emissions have huge social costs. The effect of a carbon price will then be to make alternatives competitive and to induce investments in efficiency. I don't know anyone who believes that a transition away from fossil fuels will be painless, but there is wide agreement that the market mechanisms embodied in a carbon pricing scheme are the least painless way to achieve reductions.
Now, Samuelson may not have realized it, but 2030 is a long way away. While there won't be "automatic" substitution away from coal, two decades in an environment where cap-and-trade has made alternatives profitable is more than enough time to allow industries to do what they need to do. And there will only be shortages of energy if consumers don't feel the cost of the carbon price, which they will. Maybe that additional cost will be painful, or maybe households will save themselves money by simply buying more efficient appliances, and opting for the 2,500-square-foot home rather than the 3,500-square-foot home.
But really, this is just laying the groundwork for the big stupid conclusion:
Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system will ultimately break down. It wouldn't permit satisfactory economic growth. But if we're going to try to stimulate new technologies through price, let's do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable. If environmentalists still prefer an allowance system, let's call it by its proper name: cap-and-tax.
Yowza. As any economist worth his or her salt will tell you, a cap-and-trade plan with auctioned permits is essentially identical to a carbon tax. That also happens to be exactly what Barack Obama is proposing. So, another way for Samuelson to have written this column would have been to title it "Barack Obama has a good plan to reduce carbon emissions."
I'll give Samuelson some credit -- he's right to worry about government handouts, of either permits themselves or of revenues from the sale of the permits. But that's a concern with either plan (and a much bigger concern in conservative plans to forgo pricing altogether in favor of large research subsidies). And he fails to mention the big advantage of a cap-and-trade plan, which is that it allows us to target an emissions level (and adjust it easily) rather than guessing at a carbon price.
But apparently Samuelson thought the best way to inform his readers was to significantly misrepresent the details of a cap-and-trade plan, en route to advocating a different solution which is nearly identical and in some ways inferior to cap-and-trade. His readers are now dumber for his efforts.
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Michael Shellenberger Posted 9:09 am
02 Jun 2008
http://thebreakthrough.org/blog/2008/05/will_the_climate_ ...
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Russ Posted 8:47 pm
02 Jun 2008
The fact is that Samuelson is correct that renewable energy will never come close to sustaining growth the way fossil fuels did for a few moments of hominid time, a brief blip. He's therefore right to criticize the many environmentalists who explicitly or implicitly claim that we can still have Business as Usual with mostly renewables.
Reviewing five economic models, the Environmental Defense Fund asserts that the cuts can be achieved "without significant adverse consequences to the economy." Fuel prices would rise, but because people would use less energy, the impact on household budgets would be modest.
This is mostly make-believe. If we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions. If coal is reduced, then conservation or non-fossil-fuel sources will take its place. But in the real world, if coal-fired power plants are canceled (as many were last year), wind or nuclear won't automatically substitute.
While I don't think any reasonable model is "assuming smooth transitions", it is an equally magical assumption to believe that anything close to the current level of intensification, let alone further growth, will be achievable other than through cheap, abundant fossil fuels.
While Thoreauvian simplifiers like myself do not consider the imminent energy descent to represent an "adverse effect" on the economy, but rather a correction and revolution in the classical Montesquieu sense of the term, a restoration of human conditions, nevertheless if you are beholden to growth, then you will experience any serious attempt to meet the challenges of Peak Fossil Fuel and climate change as "adverse" indeed, at least at first.
While no one "assumes smooth transitions", any such transition will be far more smooth than the "transition" (if a terminal plunge can be called that) we're going to get if we don't Simplify in good time in an organized manner.
The choices are simple - orderly retreat or absolute rout.
As emission cuts deepened, the danger of disruptions would mount. Population increases alone raise energy demand. From 2006 to 2030, the U.S. population will grow 22 percent (to 366 million) and the number of housing units 25 percent (to 141 million), the Energy Information Administration projects.
This is characteristic self-serving circular "reasoning".
"We need more energy to keep population and housing starts intensifying, and those surplus people and structures will need more energy.
Ergo, since demand keeps accelerating, supply must accelerate as well (leprechauns will provide it, just like they provide gold), as long as Al Gore cultists don't screw with the machine."
Growth was from the start an environmental, moral, spiritual, and aesthetic atrocity, and now it's running up against Malthusian physical limits. It has become a physical impossibility.
As for cap and trade vs. the carbon tax, the fact is that most economists do support the tax over the Rube Goldberg contraption. (That in itself is no endorsement, but it is a fact.)
In spite of the hype, "cap-and-trade" is just a scam. To paraphrase Voltaire, 1.there's no "cap"; it's a paper tiger once you throw in your "safety valves" and schemes(scams) to allow emitters to use future years' quotas on credit (Are you kidding me?! Boy, that's Americans for you - congenitally incapable of living within their means.) - does anyone really think those carbon debts are ever going to be paid back, any more than America's deficit in general ever is? - also the provision to allow the president to unilaterally change anything he wants in the mechanism. No, this "cap" caps nothing.
2. There's no "trade". There's rather a cabal of entrenched polluters who will now be rewarded for their legion crimes:
A. The public property called the atmosphere will be privatized; its despoilers, currently considered pirates and free riders, will now be legalized with a "right" to pollute.
B. As with most privatization, this public property will mostly be alienated free of charge. (The CBO has said, since carbon permits represent real revenue-generating public property, if the government gives them up for free this must be accounted for as relinquishing a real asset.)
C. Their quotas will be handed out proportionately according to their historical criminality. The more destruction you've accomplished in the past, the greater a license you now get for future destroying.
While this does indeed have alot in common with the nefarious "free trade" regimes, it is not "trade" in any human sense of the term.
The other day my eyes lighted on a Grist news blurb, "Canada launches its first emissions-trading market", and in a moment of Freudian dyslexia I at first read: "emissions-trading racket".
(If you read the article, you'll see that the gamers and scammers are at work up there as well.)
A carbon tax is vastly superior to c&t.
At the matter of core principle, it is wrong to privatize the atmospheric commons. We have rightly seen polluters as free-riding defacers of public property. If we really must tolerate some ongoing pollution, we can still maintain our public property. The carbon tax can be seen as a fee or a fine, according to taste, for degradation of the commons.
The economists are right to praise its elegance and efficiency. As long as it isn't loaded down with all sorts of add-ons (a real danger, to be sure), it is far more difficult to game and twist to one's illegitimate advantage. Cap/trade, on the other hand, is by definition monstrously complex and unwieldy. And by definition it is a "game", so the only question is, how much gaming will a particular incarnation enable? So far, the answer has always been, a lot.
Examples: Europe, countries were allowed OPEC-style to set their own quotas; Bingaman wants a laughable safety valve; McCain wants to shift all the mitigating to the 3rd world through offsets; W-L has this borrowing scheme for incorrigibly bad debtors.
As for the argument that a carbon tax has no "cap", if we set the upper price tier high enough this would serve as a simple, effective cap. Look at it as an excise tax.
On the other hand, as I said above, in practice "cap" and trade won't cap anything.
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Zephaniah Posted 2:28 am
03 Jun 2008
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Wolverine Posted 6:56 am
03 Jun 2008
I think that the cause of people like us would be better served by some new type of environmental group that emphasizes serious reductions in human population and individual consumption. Like you, I'm beyond sick of these have-your-cake-and-eat-it-too idiots who don't want to reduce human population or give up any part of their Earth-destroying unnatural lifestyles, but instead demand that politicians somehow save us from ourselves and/or scientists magically come up with some sort of impossible technology that will allow the same lifestyle without harming the natural world.
I haven't though about this until now and don't have a specific idea in mind. This is just a seminal thought.
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