Peter Dorman’s Posts

• A flawed strategy: Why environmental groups should not be chasing carbon dollars 4

  Posted 7 months, 2 weeks ago

  The strategy of using carbon permit auctions to fund the green agenda is deeply mistaken, and it risks pushing serious action against climate change many more years into the future -- a delay we earthlings can ill afford.

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Peter Dorman’s Recent Comments

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  Thanks for the nice words, Greg(?).  It turns out that equal per capita distributions more than buffer the lowest income groups; see this paper by Boyce and Riddle.  But there is also a political angle: if the rebate is presented as a "welfare" program for some portion of the population at the expense of the rest, it will be a very hard sell.  There is a tendency to be too fancy sometimes in policy analysis.  When possible, keep it simple and keep it universal.

  On A flawed strategy: Why environmental groups should not be chasing carbon dollars posted 7 months, 2 weeks ago 4 Responses

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  With all due respect, all sides are missing something here.  (1) Capping carbon is the right idea -- the "ball".  In the political sphere, we want to talk about carbon caps first and foremost, not taxes.  What matters is getting the cap right, not bickering over prices.  (2) The cap is a tax.  It will raise everyone's costs of carbon-using goods and services.  That's the point.  Enviros have evaded this truth for too long, hoping that somehow folks won't notice.  They will.  (3) Because it's a tax, and a regressive sales tax at that, and because there is no environmental or other purpose to be served by draining the bank accounts of the public, the logical thing to do is to give the money back -- and say so upfront.  Auction the carbon permits and rebate the proceeds back to households on an equitable (per capita) basis.  How complex is that?  "We're raising the price of stuff that's killing the planet because we need to change how our economy operates, but we're collecting that money and giving it all back.  It's a tax and rebate, all rolled into one."

  For what it's worth, I think there are two reasons green groups, with a few honorable exceptions, have been unable to speak honestly about carbon caps.  First, they still hope against hope that they can conceal the effect that a carbon cap, by itself (with a rebate), will have on households.  Maybe they won't see it's a tax, and we can avoid all that political hassle.  Second, their favorite projects have been starved for funds for so many years that they don't want to let the carbon revenues slip through their fingers.  They have visions of hundreds of billions going to renewables, transit, etc.  This second motive is both a profound political misjudgment (that they will be the ones to allocate the new revenue stream, unlike all the previous revenue streams) and a failure to recognize that the green investment agenda is not about a massive increase in spending (which would require massive new taxes), but a redirection of the billions that now go to subsidizing unsustainable practices.  Even if we wanted to dip into the taxpayers in a big way, a sales tax (i.e. an unreimbursed carbon cap) is the worst option around.

  This is about economics, but also politics.  To succeed politically, enviros have to be honest and clear, and they have to recognize that protecting the finances of American (and other) families can't just be an afterthought.

  On Somebody hide Tom Friedman's ball posted 7 months, 2 weeks ago 46 Responses

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  The carbon tax doesn't need steroids

  I think Hansen's position has been misunderstood, and this discussion, while well-intentioned, takes us further from where we need to be.

  1. There are three legs for carbon policy: regulation, investment and an economy-wide cap/tax.  Hansen prefers a tax; I prefer a cap.  In a world of certainty (we know exactly how much tax equals how much emission reduction) the two would be the same.  We don't live in that world, so the burden of uncertainty has to fall one way or the other.  Hansen would put it on carbon emissions, I'd put it on carbon prices; otherwise we're in sync.  In any case, the third leg is not intended to do the whole job but just to make sure that the job gets done.

  2. The cap/tax needs to be as simple as possible.  The goal of this leg is to fix in place as a requirement the achievement of our overall carbon target, so have a single cap/tax for the whole thing.  Just one, applied across the board.  No fiddling with this product, that technology, etc.  If it's a tax, say $x per ton of carbon introduced into the economy, period.  If it's a cap, specify the number of permits for introducing carbon into the economy and auction them all off.  Leave all the detailed consideration of how we save carbon where to regulation, investment and markets.

  3. The tax/cap is a sales tax.  Sales taxes are regressive.  But give the money back to the public as a dividend, and the majority of people will come out ahead.  In particular: (1) Don't fund green investments out of a national sales tax.  Don't be regressive.  (2) Care about the living standards of ordinary people.  Lots of folks are barely making it or not at all, especially in the current economic situation.  Don't raise their energy taxes and leave them to suffer the consequences.  Give them the money back.  (3) We are talking about a carbon diet that the country must adhere to for at least the next 40 years.  It has to be politically untouchable, like Social Security.  (Bush tried to junk it but couldn't get anywhere.)  If you don't give the money back you will have to depend on the willingness of political majorities, year after year after year, to willingly tighten their belts for the green cause.  I'd rather up the odds by adopting a policy that goes out of its way not to hurt people.

  Repeat: we need lots of targeted policy in housing, transportation, manufacturing, agriculture.  This is not the role of the cap/tax, although it does provide an appropriate incentive environment for policy.  (Think how much easier it will be to get voters to support bonds for mass transit when gas is really expensive.)  So we don't need fine-tuning on carbon prices, just a single, big, emission-reduction-forcing boost will do it.

  Peter

  On Some perspective on tax-and-dividend and a better alternative posted 8 months, 3 weeks ago 26 Responses