<![CDATA[Grist - Comment Feed for Why cap-and-trade is preferable to a carbon tax]]> Grist Comment Feed en Comment #1 by GreyFlcn http://www.grist.org/article/the-good-and-the-bad/ Thu, 06 Dec 2007 04:11:59 -0800 http://www.grist.org/article/the-good-and-the-bad/1 Basically because

1. C&T you set the level you want to achieve, and the market figures out how to get there.
(Rather than the government figuring out an appropriate tax level, and then figuring out how to appropriately spend the income from the tax, and of course collect the tax.  In many countries tax collection is a problem.)

2. You can readily set the cap levels appropriately between different nations, in a way that makes it so that less developed nations, or (Those nations with less historical emissions) aren't dinged as much.  Which means that they would LIKE to get involved in this voluntary program, because it would be somewhat in this favor.)

]]> Basically because

1. C&T you set the level you want to achieve, and the market figures out how to get there.
(Rather than the government figuring out an appropriate tax level, and then figuring out how to appropriately spend the income from the tax, and of course collect the tax.  In many countries tax collection is a problem.)

2. You can readily set the cap levels appropriately between different nations, in a way that makes it so that less developed nations, or (Those nations with less historical emissions) aren't dinged as much.  Which means that they would LIKE to get involved in this voluntary program, because it would be somewhat in this favor.)

]]> Comment #2 by sindark http://www.grist.org/article/the-good-and-the-bad/ Thu, 06 Dec 2007 04:18:28 -0800 http://www.grist.org/article/the-good-and-the-bad/2 Integration

Another good thing about cap-and-trade systems is that they should be easier to integrate internationally. Regional systems can be amalgamated into national systems, while national systems can be linked into global systems.

That, in turn, will help limit the degree to which industry in one place or another can complain that their competitors overseas have the 'unfair' advantage of being able to pollute at no direct cost to themselves.

a sibilant intake of breath

]]> Integration

Another good thing about cap-and-trade systems is that they should be easier to integrate internationally. Regional systems can be amalgamated into national systems, while national systems can be linked into global systems.

That, in turn, will help limit the degree to which industry in one place or another can complain that their competitors overseas have the 'unfair' advantage of being able to pollute at no direct cost to themselves.

a sibilant intake of breath

]]> Comment #3 by BernardBrown http://www.grist.org/article/the-good-and-the-bad/ Thu, 06 Dec 2007 05:13:22 -0800 http://www.grist.org/article/the-good-and-the-bad/3 Consumer feel

I don't understand why a carbon tax couldn't be incrementally increased (remaining revenue neutral through increasing income tax reductions or rebates) over time similar to how the cap in a cap and trade would be incrementally lowered, which would seem to take care of any worries about it being set too low.

Change the world one lunch at a time. Find out how at www.pbjcampaign.org

]]> Consumer feel

I don't understand why a carbon tax couldn't be incrementally increased (remaining revenue neutral through increasing income tax reductions or rebates) over time similar to how the cap in a cap and trade would be incrementally lowered, which would seem to take care of any worries about it being set too low.

Change the world one lunch at a time. Find out how at www.pbjcampaign.org

]]> Comment #4 by Tony Kreindler http://www.grist.org/article/the-good-and-the-bad/ Thu, 06 Dec 2007 05:55:27 -0800 http://www.grist.org/article/the-good-and-the-bad/4 The right focus

Clark,

Right on the money with focus on the need for certainty when it comes to climate policy.

What we know is how far we need to reduce emissions to have our best shot at stabilizing global temperatures; what we don't know is what price on carbon will drive emissions down that far. So we're faced with a choice: certainty of results, or certainty of costs.

If climate policy is going to be about the climate, the choice has to be results, and the best way to guarantee them is a cap. And with cap and trade, we can at least be certain about this when it comes to costs -- they will be as low as possible because companies can hunt for the cheapest reductions.

]]> The right focus

Clark,

Right on the money with focus on the need for certainty when it comes to climate policy.

What we know is how far we need to reduce emissions to have our best shot at stabilizing global temperatures; what we don't know is what price on carbon will drive emissions down that far. So we're faced with a choice: certainty of results, or certainty of costs.

If climate policy is going to be about the climate, the choice has to be results, and the best way to guarantee them is a cap. And with cap and trade, we can at least be certain about this when it comes to costs -- they will be as low as possible because companies can hunt for the cheapest reductions.

]]> Comment #5 by BernardBrown http://www.grist.org/article/the-good-and-the-bad/ Thu, 06 Dec 2007 06:57:14 -0800 http://www.grist.org/article/the-good-and-the-bad/5 Shape of the curve

The newly posted Grist article on the proposed San Francisco carbon tax has some interesting implications for this discussion. A few local carbon tax experiments could give us a feel for how businesses and individuals (in cases where individuals pay the tax) respond to a given level of carbon taxation and reduce that point of uncertainty in the comparison.

Change the world one lunch at a time. Find out how at www.pbjcampaign.org

]]> Shape of the curve

The newly posted Grist article on the proposed San Francisco carbon tax has some interesting implications for this discussion. A few local carbon tax experiments could give us a feel for how businesses and individuals (in cases where individuals pay the tax) respond to a given level of carbon taxation and reduce that point of uncertainty in the comparison.

Change the world one lunch at a time. Find out how at www.pbjcampaign.org

]]> Comment #6 by BILL HANNAHAN http://www.grist.org/article/the-good-and-the-bad/ Thu, 06 Dec 2007 07:13:34 -0800 http://www.grist.org/article/the-good-and-the-bad/6 Back to basics

The driving force is our belief that greenhouse gas emissions are altering the climate in a way that has a net harmful effect. We want to encourage people to make decisions that minimize this damage.

The most simple, direct and transparent way to do that is with a tax on emissions equal to the cost of the damage they do. This will encourage people to choose less damaging alternates, and we can use the tax money to develop better technology.

Now there is great uncertainty in the net cost of the damage done, so start out at say 1/3 above the lower end of the range, and as the analysis tightens up the tax rate will become more accurate. The rate could be tied to a scientific calculation that would automatically adjust each year without a political vote, similar to the consumer price index.

Cap and  trade is a game whose rules have not been written. No matter what the rules end up being, tens of thousands of very bright people will dedicate their lives to nonproductive gaming of the system to make money.

There is no way cap and trade can be more accurate than the above proposal, and many ways it could be worse.

Under cap and trade consumers could find themselves spending $1000 on impractical technology to prevent $200 worth of environmental damage, or just the opposite.


]]> Back to basics

The driving force is our belief that greenhouse gas emissions are altering the climate in a way that has a net harmful effect. We want to encourage people to make decisions that minimize this damage.

The most simple, direct and transparent way to do that is with a tax on emissions equal to the cost of the damage they do. This will encourage people to choose less damaging alternates, and we can use the tax money to develop better technology.

Now there is great uncertainty in the net cost of the damage done, so start out at say 1/3 above the lower end of the range, and as the analysis tightens up the tax rate will become more accurate. The rate could be tied to a scientific calculation that would automatically adjust each year without a political vote, similar to the consumer price index.

Cap and  trade is a game whose rules have not been written. No matter what the rules end up being, tens of thousands of very bright people will dedicate their lives to nonproductive gaming of the system to make money.

There is no way cap and trade can be more accurate than the above proposal, and many ways it could be worse.

Under cap and trade consumers could find themselves spending $1000 on impractical technology to prevent $200 worth of environmental damage, or just the opposite.


]]> Comment #7 by GRLCowan http://www.grist.org/article/the-good-and-the-bad/ Thu, 06 Dec 2007 07:40:58 -0800 http://www.grist.org/article/the-good-and-the-bad/7 Why should gov't profit in proportion to damage?

The most simple, direct and transparent way to do that is with a tax on emissions equal to the cost of the damage they do.

Since this would fund everyone who takes a government cheque in proportion to the damage the emissions do, and some of those people have the power to obstruct us in reducing damage, it would reward them for that obstruction.

Perhaps Hannahan is aware that strict enforcement of highway speed limits would greatly reduce CO2 emissions from cars and trucks, and is not done precisely because such emissions are heavily taxed.

There isn't a life-saving, tremendously capable CO2-free power source that is hindered in its expansion by a multi-year paper chase, is there? That would be too blatant.

--- G.R.L. Cowan, hydrogen-to-boron convert
How shall cars gain nuclear cachet?
http://www.eagle.ca/~gcowan/boron_blast.html

]]> Why should gov't profit in proportion to damage?

The most simple, direct and transparent way to do that is with a tax on emissions equal to the cost of the damage they do.

Since this would fund everyone who takes a government cheque in proportion to the damage the emissions do, and some of those people have the power to obstruct us in reducing damage, it would reward them for that obstruction.

Perhaps Hannahan is aware that strict enforcement of highway speed limits would greatly reduce CO2 emissions from cars and trucks, and is not done precisely because such emissions are heavily taxed.

There isn't a life-saving, tremendously capable CO2-free power source that is hindered in its expansion by a multi-year paper chase, is there? That would be too blatant.

--- G.R.L. Cowan, hydrogen-to-boron convert
How shall cars gain nuclear cachet?
http://www.eagle.ca/~gcowan/boron_blast.html

]]> Comment #8 by Sean Casten http://www.grist.org/article/the-good-and-the-bad/ Thu, 06 Dec 2007 08:45:48 -0800 http://www.grist.org/article/the-good-and-the-bad/8 A carbon tax is a crummy business idea

You write that:

Just so, a tax gives a better guarantee of price stability than cap-and-trade. There's no chance of a carbon "price shock" with a tax, nor of a collapse in carbon prices (as happened in the early stages of the European emissions trading system). And businesses love predictability -- without it, it's hard to plan investments.

This is exactly wrong.  Yes, a cap & trade has a variable price, but this is vastly preferable from a business perspective, because at least it's always there (an advantage of complexity in this case is that it's really hard to undo the regulation once passed).  Compare this to a tax, where the amount of the tax - and indeed, it's very existence - blows with political cycles.  What is the estate tax going to be next year?  How about AMT?  What's going to happen to carried interest taxes for private equity firms?  No one knows with any certainty.  Why should we believe that a carbon tax is less prone to such uncertainty?  

As a guy looking to deploy capital in GHG-reduction projects, I don't know how to use a carbon tax.  It's great if I can get it, but I never really trust that I can access that revenue, and so I don't build it into contracts and it doesn't affect capital deployment.  

A cap & trade, by contrast is much more predictable.  Yes, I don't know exactly what the price will be, but I know it'll still be there, and it therefore becomes like any other market.  Just because I don't know what the price of grain is going to be next year doesn't mean that I can't plan for it.  Indeed, I can even lock in my price in futures markets or other long-term contracting vehicles that clever intermediary brokers have created.  They'll no doubt do the same in a cap & trade regime.  But a tax never lets that happen.

So I agree with you - but for opposite reasons that only strengthen your argument, since the "pros" for a carbon tax as presented are actually it's biggest weakness.

]]> A carbon tax is a crummy business idea

You write that:

Just so, a tax gives a better guarantee of price stability than cap-and-trade. There's no chance of a carbon "price shock" with a tax, nor of a collapse in carbon prices (as happened in the early stages of the European emissions trading system). And businesses love predictability -- without it, it's hard to plan investments.

This is exactly wrong.  Yes, a cap & trade has a variable price, but this is vastly preferable from a business perspective, because at least it's always there (an advantage of complexity in this case is that it's really hard to undo the regulation once passed).  Compare this to a tax, where the amount of the tax - and indeed, it's very existence - blows with political cycles.  What is the estate tax going to be next year?  How about AMT?  What's going to happen to carried interest taxes for private equity firms?  No one knows with any certainty.  Why should we believe that a carbon tax is less prone to such uncertainty?  

As a guy looking to deploy capital in GHG-reduction projects, I don't know how to use a carbon tax.  It's great if I can get it, but I never really trust that I can access that revenue, and so I don't build it into contracts and it doesn't affect capital deployment.  

A cap & trade, by contrast is much more predictable.  Yes, I don't know exactly what the price will be, but I know it'll still be there, and it therefore becomes like any other market.  Just because I don't know what the price of grain is going to be next year doesn't mean that I can't plan for it.  Indeed, I can even lock in my price in futures markets or other long-term contracting vehicles that clever intermediary brokers have created.  They'll no doubt do the same in a cap & trade regime.  But a tax never lets that happen.

So I agree with you - but for opposite reasons that only strengthen your argument, since the "pros" for a carbon tax as presented are actually it's biggest weakness.

]]> Comment #9 by GreyFlcn http://www.grist.org/article/the-good-and-the-bad/ Thu, 06 Dec 2007 13:46:24 -0800 http://www.grist.org/article/the-good-and-the-bad/9 Also frankly

Also frankly Banking of tradable credits tends to make it so that you don't get those market shocks, and it allows for better long range planning.

]]> Also frankly

Also frankly Banking of tradable credits tends to make it so that you don't get those market shocks, and it allows for better long range planning.

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