Cap-and-trade, when studied under one simplified scenario, beats carbon tax, one study finds

© 2011 Joshua Stark

My title should have been the title to this article out today at California Watch.  Unfortunately, they picked a title with a tad less specificity, and in doing so have picked a side in the debate between the two ideas.  Their title:  Free cap-and-trade system beats carbon tax, study finds.

That study, Inducing Clean Technology in the Electricity Sector:  Tradable Permits or Carbon Tax Policies?, by UC Merced & the University of New South Wales, compares the possible impacts of a carbon tax vs. a cap-&-trade system using a model of a single, small firm that owns a coal-fired power plant.  In the abstract, the authors claim to find that, due to the inherent uncertainty of a tradable permit system, a small firm will more likely hedge its bets by investing in some hybrid form of clean tech. + coal than it would under a system with a more stable carbon price.

Now, I don't have $20 to put down on a copy of this study (chalk it up to microeconomics, both literally and figuratively), but I do have some questions - especially to California Watch:

-The study's abstract says nothing of a "free cap-and-trade system", and in fact, I don't have a clue as to what a "free" cap-&-trade system would look like.  People pay when carbon is priced, period.  So, California Watch, where did "free" come in?

-The study's abstract also explains that other ideas associated with C&T (e.g., offsets) are also more expensive than just a tradable permits system without them.  California Watch, why did you not include this little gem of news?

-And for the researchers: Why study a particular scenario that is unlikely to have much of an impact on carbon?  If energy companies were as the authors envision - small firms owning one coal plant - then uncertainty may lead to hedging.  However, we are talking about creating a contrived, government-mandated market with a number of very, very large firms.  These firms move markets, they tend to suppress volatility (which is why companies want to be big), and they unduly influence political economy in their favor (hence, offsets & free permits to them).  This last point cannot be understated, especially because any carbon price is going to be the result of a government regulation and it will be much easier to "game" the system if it has elements of contrived uncertainty in it. 

Also, consider this:  A clear government regulation pointing to a relatively quick increase in carbon prices will also lead a small firm to switch to clean tech.  In fact, if the price looks high enough, that firm will leave coal completely, thus saving lives.  This regulation will also lead big firms to switch.

Never forget that, no matter how we price carbon, it will be through a government regulation.

Uncertainty in carbon prices may, indeed, lead many companies to hedge their bets, although current history (carbon prices are surely uncertain right now) does not completely bear this out.  And if carbon prices were a commodity, rather than a priced-in externality, I'd be more inclined to allow some uncertainty.  But the fact is that any carbon price will be contrived, because it doesn't have to have a market price.  Since the price for carbon will come out of regulations (even a C&T price) and an artificial scarcity, since large companies can thrive on creating their own certainty and influence shifting and uncertain regulations to a greater extent, and since a clear sign that carbon prices will go up will also induce a strong shift toward clean tech., it is imperative that we have a clear and certain regulatory framework.

Bad Science on levees makes it into the paper

© 2011 Joshua Stark

Alas, having an advanced degree in a field doesn't always mean you are always right all the time.

Take this op-ed piece in yesterday's Sacramento Bee.  In it, a Dr. Lund from UC Davis, a man who is probably nearly a genius in his field, makes some very dubious claims about Central California's levees.  Sadly, here he refers to no studies nor historical evidence to prove his position.

The professor's claim is that we should remove trees from all "urban" levees, per a requirement by the US Army Corps of Engineers, even though doing so may have bad impacts to riparian habitat and recreational values.  He is concerned because trees may weaken levees, and hide burrows from workers checking them.

What does the professor use to support his claim?  The fact that other parts of the world - namely, China, Japan, & the Netherlands - remove trees from their levees.

That's it.

He offers no studies in this article that have shown these levees to be superior to California's.  He offers no examples of California levee failures (or any levee failures) due to trees.  He offers no support whatsoever for such an environmentally devastating act, for an act that will forever change habitats and recreation on our levees.

After some research, I found Dr. Lund's article as a blog post where he actually does cite references.  However, the references are largely skewed (most being from the Corps), or almost never support his position.  For example, this Power Point presentation lists trees and vegetation that are more or less problematic according to their research on European levees.  The list describes a host of bramble bushes - blackberries and such - as less problematic for levees.  However, I daresay that a burrow would be harder to find in a blackberry bramble than under a valley oak.

Another example, from the Ca. Dept. of Water Resources link he cites:  "... California asserts that the Corps’ strict enforcement of the ETL and PGL will adversely impact public safety."

An earlier report by the Sacramento Bee, about the lawsuit by environmental groups against the Corps for this horrid idea, did mention the science on levee failures:
"But it (the Corps) offers little scientific evidence for those conclusions (to remove trees).  A 2007 symposium hosted by the Sacramento Area Flood Control Agency (SAFCA) offered evidence for the opposing view: Tree roots may, in fact, strengthen levees by binding soils together."

I am no levee engineer.  However, a quick google search of images from the last major levee failure on the California Delta, at Jones Tract in 2004, are telling; do you see any trees?  Also, think back to times when you've noticed tree roots, perhaps sticking out of the side of a cut-bank on a road or a creek.  Think about the dirt and rocks sticking to it, and how it and the land touching it stick way out from the eroded places around it, places that only had short grasses growing on it.

Last, I want to make a point about Dr. Lund's tone (and nearly everybody else talking publicly) when talking about levees:  It is super-easy to make dire predictions, because nobody wants to have been the Pollyanna the day one fails, and because the old saw about there being two types of levees (those that have failed, and those that are about to) is true.  But I would like to point out that this year we have experienced well over double our average runoff, and have had no major levee breech. 

It may be time to reconsider a push for drastic actions to redesign a system that has been working pretty well for quite a while.  Eventually, a levee will fail.  Far less likely will multiple levees fail, and the event that would cause multiple failures will also likely go beyond what we actually accomplish to protect them now, regardless of the current wild-eyed rhetoric.  Perhaps we should look at smaller-scale solutions to a recurring issue, rather than panicking about a potential catastrophe.

And for the record, I was born and raised on the Delta, and I live on the Delta now, as do my parents, a sister, and a nephew.