© 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.
Showing posts with label cap and trade. Show all posts
Showing posts with label cap and trade. Show all posts
Monday, July 11, 2011
Friday, February 4, 2011
California Cap & Trade loses its court fight, and salt ponds show quick rebound
© 2011 Joshua Stark
A couple of unrelated news items, but both timely and interesting.
The California Air Resources Board's adoption of a cap & trade program was shut down by a judge yesterday, due to CARB's inadequate analysis of alternatives, a CEQA (California Environmental Quality Act) requirement.
CEQA requires state agencies to analyze alternative ways of achieving a project's goal, choosing the most environmentally appropriate way to accomplish it. In the case of cap & trade, a coalition of environmental justice (EJ) advocates, led by the Center on Race, Poverty and the Environment, successfully argued that CARB didn't adequately analyze the alternatives to cap & trade that they'd put forward. And, they have a point.
Many EJ folks have a serious problem with cap & trade. While on the large scale, C&T could lower total carbon emissions, it does it in a way that favors particular regions (usually rich ones), and hurts others (usually poor ones). For carbon, this isn't a problem, because carbon doesn't, say, cause asthma near where it is emitted. However, impacts to industries that would cut back on carbon emissions would also lead them to cut back on "co-pollutants", those pollutants that come out with carbon, and these are typically very harmful to local communities.
The way C&T gains economic efficiency over other methods is by allowing companies to choose whether it is cheaper to cut their emissions (by lowering output or installing cleaner tech.), or cheaper to buy emissions credits on a market. By doing this calculation, the price of carbon becomes clear in a market-like manner, and we see cuts to carbon emissions.
It is a simple leap, then, to understand that, if company A wants to buy carbon emissions credits instead of cleaning its emissions, then it will continue to emit carbon, and whatever else comes out of that smokestack. In fact, if California's cap & trade is tied to a larger market-like mechanism, California could theoretically see increases in its own air pollution, including carbon.
It's the "whatever else" that bothers EJ advocates and the judge. CEQA's job is to ensure that state activities consider the most environmentally appropriate actions. In addition, CARB is mandated to decrease air pollution, and if its activities actually increase pollutants, it may well be in violation of its own mandate.
Stay tuned for more in this arena, for sure.
In other, happier news, recovered salt flats in the South San Francisco Bay are returning to their natural state at a very fast clip. As a Son of the Delta, I am always thrilled to see wetlands recover so quickly, especially considering just how cautious scientists have been due to concerns over water pollution.
My favorite line from that report: "A similar study done in 1,400 acres of former Cargill ponds in the North Bay near the Napa River also found a wide abundance of bay fish had come back, including striped bass, tule perch and even a chinook salmon, some only weeks after the ponds had been breached."
A similar scene has been taking place for the last seven years in Iraq, too - if you are interested in that one, head over to Nature Iraq.
A couple of unrelated news items, but both timely and interesting.
The California Air Resources Board's adoption of a cap & trade program was shut down by a judge yesterday, due to CARB's inadequate analysis of alternatives, a CEQA (California Environmental Quality Act) requirement.
CEQA requires state agencies to analyze alternative ways of achieving a project's goal, choosing the most environmentally appropriate way to accomplish it. In the case of cap & trade, a coalition of environmental justice (EJ) advocates, led by the Center on Race, Poverty and the Environment, successfully argued that CARB didn't adequately analyze the alternatives to cap & trade that they'd put forward. And, they have a point.
Many EJ folks have a serious problem with cap & trade. While on the large scale, C&T could lower total carbon emissions, it does it in a way that favors particular regions (usually rich ones), and hurts others (usually poor ones). For carbon, this isn't a problem, because carbon doesn't, say, cause asthma near where it is emitted. However, impacts to industries that would cut back on carbon emissions would also lead them to cut back on "co-pollutants", those pollutants that come out with carbon, and these are typically very harmful to local communities.
The way C&T gains economic efficiency over other methods is by allowing companies to choose whether it is cheaper to cut their emissions (by lowering output or installing cleaner tech.), or cheaper to buy emissions credits on a market. By doing this calculation, the price of carbon becomes clear in a market-like manner, and we see cuts to carbon emissions.
It is a simple leap, then, to understand that, if company A wants to buy carbon emissions credits instead of cleaning its emissions, then it will continue to emit carbon, and whatever else comes out of that smokestack. In fact, if California's cap & trade is tied to a larger market-like mechanism, California could theoretically see increases in its own air pollution, including carbon.
It's the "whatever else" that bothers EJ advocates and the judge. CEQA's job is to ensure that state activities consider the most environmentally appropriate actions. In addition, CARB is mandated to decrease air pollution, and if its activities actually increase pollutants, it may well be in violation of its own mandate.
Stay tuned for more in this arena, for sure.
In other, happier news, recovered salt flats in the South San Francisco Bay are returning to their natural state at a very fast clip. As a Son of the Delta, I am always thrilled to see wetlands recover so quickly, especially considering just how cautious scientists have been due to concerns over water pollution.
My favorite line from that report: "A similar study done in 1,400 acres of former Cargill ponds in the North Bay near the Napa River also found a wide abundance of bay fish had come back, including striped bass, tule perch and even a chinook salmon, some only weeks after the ponds had been breached."
A similar scene has been taking place for the last seven years in Iraq, too - if you are interested in that one, head over to Nature Iraq.
Wednesday, December 15, 2010
The Air Resources Board is poised to make a bad decision... help them see the light!
© 2010 Joshua Stark
Contact the California Air Resources Board (CARB) and tell them to vote down the current cap & trade proposal before them tomorrow.
I haven't written on cap & trade in quite a while, but here's a quick run-down of my views:
1) Carbon pricing must be collected by the government - giving away carbon 'credits' is tantamount to allowing companies to tax consumers for the companies' pollution;
2) Carbon offsets are too costly to monitor and too easy to get around - if you don't trust that California can pay for adequate monitoring of its carbon offset projects, do you really believe Brazil or Chiapas can?;
3) Cap & trade can work, but only if it is fairly expensive, and only if the revenues are given back mostly to the people via a direct rebate, and the rest only used to mitigate or adapt to climate change.
(If you are interested in my more extensive writings on the topic, click here, here, here, and/or here.)
Keeping in mind that there is no such thing as a "carbon market" - it isn't a good or service with any consumption value, and any scarcity of carbon will be contrived by the government - it is easy to remember that any attempt to put a price on carbon emissions will be a tax of some sort. This is not bad! Taxes are not always bad! However, they are bad if they are allowed to be collected by private parties, and the latest proposal, by giving away carbon credits to the companies and industries that pollute the most, will do exactly that.
In addition, the forest rules in the latest proposal will most likely provide incentives for timber companies to clear-cut, and they will definitely subsidize wood products in California, with the subsidies, again, being paid by consumers directly to the companies that pollute the most (those getting the free credits). Look for California oil companies to start buying a lot more wooden chairs and tables than you'd think they'd need. Also look out for giant chair bonfires at your local refinery...
This is a bad proposal, and its complexity makes it ripe for gaming. It is also probably going to be so cheap that it will do very little to curb actual carbon emissions, with the result being a nominal tax on consumers given directly to polluting companies. What an interesting way to save our planet!
For more information, start with this article at California Watch; to contact CARB about the cap & trade proposal, click here.
Contact the California Air Resources Board (CARB) and tell them to vote down the current cap & trade proposal before them tomorrow.
I haven't written on cap & trade in quite a while, but here's a quick run-down of my views:
1) Carbon pricing must be collected by the government - giving away carbon 'credits' is tantamount to allowing companies to tax consumers for the companies' pollution;
2) Carbon offsets are too costly to monitor and too easy to get around - if you don't trust that California can pay for adequate monitoring of its carbon offset projects, do you really believe Brazil or Chiapas can?;
3) Cap & trade can work, but only if it is fairly expensive, and only if the revenues are given back mostly to the people via a direct rebate, and the rest only used to mitigate or adapt to climate change.
(If you are interested in my more extensive writings on the topic, click here, here, here, and/or here.)
Keeping in mind that there is no such thing as a "carbon market" - it isn't a good or service with any consumption value, and any scarcity of carbon will be contrived by the government - it is easy to remember that any attempt to put a price on carbon emissions will be a tax of some sort. This is not bad! Taxes are not always bad! However, they are bad if they are allowed to be collected by private parties, and the latest proposal, by giving away carbon credits to the companies and industries that pollute the most, will do exactly that.
In addition, the forest rules in the latest proposal will most likely provide incentives for timber companies to clear-cut, and they will definitely subsidize wood products in California, with the subsidies, again, being paid by consumers directly to the companies that pollute the most (those getting the free credits). Look for California oil companies to start buying a lot more wooden chairs and tables than you'd think they'd need. Also look out for giant chair bonfires at your local refinery...
This is a bad proposal, and its complexity makes it ripe for gaming. It is also probably going to be so cheap that it will do very little to curb actual carbon emissions, with the result being a nominal tax on consumers given directly to polluting companies. What an interesting way to save our planet!
For more information, start with this article at California Watch; to contact CARB about the cap & trade proposal, click here.
Wednesday, May 12, 2010
Climate bills...
© 2010 Joshua Stark
Well, Grist has a good break-down of the bills (and Pres. proposal) for carbon capping.
Just remember, the purpose of this is to cut carbon emissions into the atmosphere.
Update: I'm reading through some summaries, and I'm happy to report that there is a rebate in the Lieberman-Kerry proposal, although I'm sad to report that some of it is in the form of energy bill credits. That is stupid and sick, because it will incentivize people to use more energy in-house, while benefiting large companies.
Also, the proposed use for the remaining revenues (deficit reduction) doesn't take into account mitigating impacts on climate change. That's too bad, because we need serious watershed and habitat protections and resiliency - they impact human lives, and they are valuable in and of themselves, yet they don't get a check cut to them.
Well, Grist has a good break-down of the bills (and Pres. proposal) for carbon capping.
Just remember, the purpose of this is to cut carbon emissions into the atmosphere.
Update: I'm reading through some summaries, and I'm happy to report that there is a rebate in the Lieberman-Kerry proposal, although I'm sad to report that some of it is in the form of energy bill credits. That is stupid and sick, because it will incentivize people to use more energy in-house, while benefiting large companies.
Also, the proposed use for the remaining revenues (deficit reduction) doesn't take into account mitigating impacts on climate change. That's too bad, because we need serious watershed and habitat protections and resiliency - they impact human lives, and they are valuable in and of themselves, yet they don't get a check cut to them.
Wednesday, April 14, 2010
Senate considers a fifteen cent gas tax to fight global warming
© 2010 Joshua Stark
Do I have an automatic, knee-jerk reaction to big oil companies supporting climate change legislation? Yes, I do. I understand that I need to rein that in some, but in this case, I'm concluding with my knee-jerk reaction.
flx1247rg
The L.A. Times reports that Sens. Lieberman, Kerry & Graham are hashing out a tri-partisan (the Independents in the Senate are their own beast) climate change bill that would possibly include a gas tax of around fifteen cents. The Times reports that some oil companies are in favor of this because, "it figures to cost them far less than other proposals to reduce greenhouse gas emissions, including provisions in the climate bill the House passed last year."
I guess so.
Here's another interesting tidbit from the Times:
The fifteen cent gas tax, "is shaping up as a critical but controversial piece in the efforts by Graham, Sen. Joe Lieberman (I-Conn.) and Sen. John Kerry (D-Mass.) to write a climate bill that moderate Republicans could support. Along those lines, the bill will also include an expansion of offshore oil drilling and major new incentives for nuclear power plant construction."
Is this a "climate bill" like Clear Skies was an "air quality" bill? I still need to get the specifics for myself, but if what we end up with is a bill where consumers have to pay a regressive tax so that major companies can have an easier time pumping more oil and not paying for failed nuclear projects, then this is looking a lot more like the environmental double-speak of administrations in the past.
We need a price on carbon, not just gas. And, we need a rebate of a good chunk of that money directly to Americans, to help mitigate the regressive nature of that price. Also, the price has to be big enough to hit the 300 ppm of atmospheric carbon that is generally agreed to in the scientific community. If it's easier to hit that number with a cap, then cap it. If it's easier to hit that number with a cap-&-trade, then do that. If it's easier to hit that number with a tax, then I'm all for it. Just remember to mitigate the regressive impacts, and don't let individuals or individual companies off the hook.
For a refresher, here are some quick links to pieces I've written about climate change and/or regressive taxes:
Carbon Pricing: Who, What, Why (the basics)
Cap & Trade, Front & Center (on alliances and positions about its impacts)
Where are all the Big Greenhouse Gas Emitters? (on California's list of its biggest emitters, and greenwashing)
My Problem with Pigou (on Pigovian taxes used to help alleviate negative externalities, and the need for rebates)
Cap & Squander Strikes Back! (on a highly respected panel of economists agreeing with me about rebates)
Do I have an automatic, knee-jerk reaction to big oil companies supporting climate change legislation? Yes, I do. I understand that I need to rein that in some, but in this case, I'm concluding with my knee-jerk reaction.
flx1247rg
The L.A. Times reports that Sens. Lieberman, Kerry & Graham are hashing out a tri-partisan (the Independents in the Senate are their own beast) climate change bill that would possibly include a gas tax of around fifteen cents. The Times reports that some oil companies are in favor of this because, "it figures to cost them far less than other proposals to reduce greenhouse gas emissions, including provisions in the climate bill the House passed last year."
I guess so.
Here's another interesting tidbit from the Times:
The fifteen cent gas tax, "is shaping up as a critical but controversial piece in the efforts by Graham, Sen. Joe Lieberman (I-Conn.) and Sen. John Kerry (D-Mass.) to write a climate bill that moderate Republicans could support. Along those lines, the bill will also include an expansion of offshore oil drilling and major new incentives for nuclear power plant construction."
Is this a "climate bill" like Clear Skies was an "air quality" bill? I still need to get the specifics for myself, but if what we end up with is a bill where consumers have to pay a regressive tax so that major companies can have an easier time pumping more oil and not paying for failed nuclear projects, then this is looking a lot more like the environmental double-speak of administrations in the past.
We need a price on carbon, not just gas. And, we need a rebate of a good chunk of that money directly to Americans, to help mitigate the regressive nature of that price. Also, the price has to be big enough to hit the 300 ppm of atmospheric carbon that is generally agreed to in the scientific community. If it's easier to hit that number with a cap, then cap it. If it's easier to hit that number with a cap-&-trade, then do that. If it's easier to hit that number with a tax, then I'm all for it. Just remember to mitigate the regressive impacts, and don't let individuals or individual companies off the hook.
For a refresher, here are some quick links to pieces I've written about climate change and/or regressive taxes:
Carbon Pricing: Who, What, Why (the basics)
Cap & Trade, Front & Center (on alliances and positions about its impacts)
Where are all the Big Greenhouse Gas Emitters? (on California's list of its biggest emitters, and greenwashing)
My Problem with Pigou (on Pigovian taxes used to help alleviate negative externalities, and the need for rebates)
Cap & Squander Strikes Back! (on a highly respected panel of economists agreeing with me about rebates)
Wednesday, March 3, 2010
Offsets Bad!
© 2010 Joshua Stark
My favorite weekday radio program, Marketplace, reports on offset problems in Brazil. This report adds another problem to the "offsets" concept.
First, a quick definition of "offsets". In a carbon pricing mechanism, government first caps the total amount of carbon allowed, then allows a price to be set for the remaining carbon. In it's most simple and fairest form, this price is set through a government auction of the carbon permits. An offset is a project or action that a company can take that will pull as much carbon out of the atmosphere (called "sequestering") as it is polluting beyond its permits.
flx1247rg
Theoretically, a company would buy a certain number of carbon permits, and if it couldn't cut its carbon pollution to a level below its permits, it would then purchase something that would sequester the carbon above its permitted level.
Examples of carbon offset projects include forests and solar panel projects that replace fossil-fuel generation.
I have written about my dislike of offset projects (look here, for example), and I think this post's title sums up my thoughts pretty succinctly. It isn't the idea in and of itself that offends, but the downstream potential for slacking-off in monitoring its effectiveness, the potential for gaming an already-complex system, and the impacts on co-pollutants that bothered me so much.
A few months ago, my wife asked another vital question: What will these incursions on wildlands have on the people who live there? She had her doubts about these projects, too. Marketplace gave one answer, and you can add that problem to my list of reasons to disapprove of offsets.
Offsets highlight a major problem in our political system: regulatory oversight, both by actual regulators, and also by non-governmental entities. Government regulatory oversight, especially around politically hostile topics like the environment, is often, ironically, irregular. Political powers shift, sometimes within the same administration, and leadership positions within regulatory agencies are often seen as rungs on a ladder, rather than places where permanence and stability are desired.
In addition, the hard slog of maintaining a regular presence at agency meetings and in regards to regulatory measures is very difficult for private individuals and non-profit organizations. The Next Big Bill in the legislature or Congress is far sexier to both media and donors, and nonprofits, like everybody else, are constantly forced to reconcile their hours with their budgets.
Offsets add problems and complications to any carbon-capping mechanism we choose. If international, how can we trust in compliance? If national, how can we trust in regulatory consistency? Plus, if the forests are seen as carbon stands rather than complex systems, how will the ensuing piles of money impact other services we get from these places? (I've written about the impact of pricing carbon benefits in European forests here.)
A major problem the environmental justice community has with carbon offsets concerns major polluters. It so happens that the biggest carbon polluters are also the biggest emitters of other pollution, pollution much more harmful to folks adjacent to the facilities. These companies will also have the hardest time curbing their carbon emissions, and will lean on the offset crutch, buying rights to an Amazon rainforest, instead of installing pollution-reduction equipment at home.
And now we are finding out that the long-term implications for carbon offset projects in that same rainforest can also negatively impact folks living in them.
Offsets bad!
My favorite weekday radio program, Marketplace, reports on offset problems in Brazil. This report adds another problem to the "offsets" concept.
First, a quick definition of "offsets". In a carbon pricing mechanism, government first caps the total amount of carbon allowed, then allows a price to be set for the remaining carbon. In it's most simple and fairest form, this price is set through a government auction of the carbon permits. An offset is a project or action that a company can take that will pull as much carbon out of the atmosphere (called "sequestering") as it is polluting beyond its permits.
flx1247rg
Theoretically, a company would buy a certain number of carbon permits, and if it couldn't cut its carbon pollution to a level below its permits, it would then purchase something that would sequester the carbon above its permitted level.
Examples of carbon offset projects include forests and solar panel projects that replace fossil-fuel generation.
I have written about my dislike of offset projects (look here, for example), and I think this post's title sums up my thoughts pretty succinctly. It isn't the idea in and of itself that offends, but the downstream potential for slacking-off in monitoring its effectiveness, the potential for gaming an already-complex system, and the impacts on co-pollutants that bothered me so much.
A few months ago, my wife asked another vital question: What will these incursions on wildlands have on the people who live there? She had her doubts about these projects, too. Marketplace gave one answer, and you can add that problem to my list of reasons to disapprove of offsets.
Offsets highlight a major problem in our political system: regulatory oversight, both by actual regulators, and also by non-governmental entities. Government regulatory oversight, especially around politically hostile topics like the environment, is often, ironically, irregular. Political powers shift, sometimes within the same administration, and leadership positions within regulatory agencies are often seen as rungs on a ladder, rather than places where permanence and stability are desired.
In addition, the hard slog of maintaining a regular presence at agency meetings and in regards to regulatory measures is very difficult for private individuals and non-profit organizations. The Next Big Bill in the legislature or Congress is far sexier to both media and donors, and nonprofits, like everybody else, are constantly forced to reconcile their hours with their budgets.
Offsets add problems and complications to any carbon-capping mechanism we choose. If international, how can we trust in compliance? If national, how can we trust in regulatory consistency? Plus, if the forests are seen as carbon stands rather than complex systems, how will the ensuing piles of money impact other services we get from these places? (I've written about the impact of pricing carbon benefits in European forests here.)
A major problem the environmental justice community has with carbon offsets concerns major polluters. It so happens that the biggest carbon polluters are also the biggest emitters of other pollution, pollution much more harmful to folks adjacent to the facilities. These companies will also have the hardest time curbing their carbon emissions, and will lean on the offset crutch, buying rights to an Amazon rainforest, instead of installing pollution-reduction equipment at home.
And now we are finding out that the long-term implications for carbon offset projects in that same rainforest can also negatively impact folks living in them.
Offsets bad!
Wednesday, February 3, 2010
President Obama suggesting Cap & Trade may be separated from Energy Bill
© 2010 Joshua Stark
The NY Times reports that Obama is suggesting that the only way for the energy bill to get passed is if C&T is separated from it, and then passed later, on its own.
It won't. Pass on its own, that is.
flx1247rg
So, we can continue to pay for carbon damages on the back end, through climate change, rather than on the front-end, and we can continue to subsidize carbon emissions in their market competition with non-carbon emitting energy practices and conservation.
Now, I'm no fan of the current proposal. But, considering the changing political climate around carbon, and the (contrived) exhaustion politicians get when they don't get something passed the first time, this is not good news for actual carbon reductions, or for alternative decisions for folks to have.
The feds keep slip sliding away, pushed, it would appear, by big ag. interests. Take a look at the folks most worried about cap & trade in the Senate, and ask what industries might be influencing their decisions.
Meanwhile, farmers continue to be beholden to large ag. industry, hamstrung by infertile seeds and feedlots, carbon-heavy institutions that profits only a few huge corporations.
Meanwhile, California is moving forward with its Cap & Trade proposal. Please, please, Air Resources Board, read and incorporate the recommendations on cap & trade made by some of the best minds in environmental economics in their report to you, especially the parts about the 100% auction and revenue directly to Californians.
The NY Times reports that Obama is suggesting that the only way for the energy bill to get passed is if C&T is separated from it, and then passed later, on its own.
It won't. Pass on its own, that is.
flx1247rg
So, we can continue to pay for carbon damages on the back end, through climate change, rather than on the front-end, and we can continue to subsidize carbon emissions in their market competition with non-carbon emitting energy practices and conservation.
Now, I'm no fan of the current proposal. But, considering the changing political climate around carbon, and the (contrived) exhaustion politicians get when they don't get something passed the first time, this is not good news for actual carbon reductions, or for alternative decisions for folks to have.
The feds keep slip sliding away, pushed, it would appear, by big ag. interests. Take a look at the folks most worried about cap & trade in the Senate, and ask what industries might be influencing their decisions.
Meanwhile, farmers continue to be beholden to large ag. industry, hamstrung by infertile seeds and feedlots, carbon-heavy institutions that profits only a few huge corporations.
Meanwhile, California is moving forward with its Cap & Trade proposal. Please, please, Air Resources Board, read and incorporate the recommendations on cap & trade made by some of the best minds in environmental economics in their report to you, especially the parts about the 100% auction and revenue directly to Californians.
Wednesday, January 13, 2010
Cap & Squander Strikes Back! (or, the economic mantra: incentives matter)
© 2010 Joshua Stark
The Economic and Allocation Advisory Committee (EAAC), organized to provide an economic study of California's cap & trade carbon regulation, has come back with a recommendation: Rebates!
flx1247rg
Let me step back a year and explain both my title and the concepts and controversy. Last year, I attended a session, organized by a coalition of environmental groups, on cap & trade at the federal level. One member of a national enviro. group, who will remain nameless (hint: we have a subscription to their kids magazine) described the various ideas surrounding the revenues from a cap-&-trade regulation. He first started with the one he thought the least of: a cap & rebate, where the funds from the carbon price are returned directly to individuals in the form of checks. He derisively labeled it, "cap & squander", and pointed out the obvious (to him) problem of people blowing their money on big-screen televisions. Then he moved on to describe all the great things that would happen with the money if it were used by the federal government to protect wild lands and clean our air and water.
I was dumbfounded. I understand people wanting control over the gigantic sums of money that will be generated through a carbon regulation, but again, I had to sit in stunned silence while an "expert" was allowed to railroad basic economics. The words "paternalistic", "regressive taxation", and "really?!?", repeatedly flashed through my mind.
So to quickly debunk the gentleman's concern, let me ask you, dear reader, this (rhetorical) question: Where will all this money come from?
This money will come from our economy, and in our economy, most markets are oligopolies (markets with very few producers). Now, it is not true that all new costs to businesses are automatically shuffled off to consumers; where the final cost winds up depends on a number of factors. But, it is true that one of the biggest factors in determining where that cost will settle is the number of competitors in a market. The fewer the competitors, the more the costs can be given to consumers. In monopolies and oligopolies, then, the vast majority of that additional cost is paid by consumers.
So when a carbon price hits, the prices of televisions and electricity will depend on the ability of the producers to limit their carbon emissions. "Dirtier" TV's and electricity will be more expensive, cleaner ones will be cheaper. The consumer will get a check from the carbon price, but this consumer will be playing in vastly different marketplaces, and will have many new incentives in her purchase decisions.
Now, a nationally recognized group of economists who are far more intelligent than I am (or that feller I saw last year) have suggested the same thing. They don't recommend a rebate of everything, (nor do I), but they do recommend a big rebate (me, too).
With the remaining amount, I recommend funding the parts that can't play in our market system: Wild lands, wildlife, etc. But, that's for another post. Also, I must iterate that a carbon price must be expensive (or a cap tight - same difference), or else it will not be effective. The only way to alleviate the disproportionate burden on poor folks, then, is to issue a rebate of equal amount to everybody.
Go cap & squander, everybody!
The Economic and Allocation Advisory Committee (EAAC), organized to provide an economic study of California's cap & trade carbon regulation, has come back with a recommendation: Rebates!
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Let me step back a year and explain both my title and the concepts and controversy. Last year, I attended a session, organized by a coalition of environmental groups, on cap & trade at the federal level. One member of a national enviro. group, who will remain nameless (hint: we have a subscription to their kids magazine) described the various ideas surrounding the revenues from a cap-&-trade regulation. He first started with the one he thought the least of: a cap & rebate, where the funds from the carbon price are returned directly to individuals in the form of checks. He derisively labeled it, "cap & squander", and pointed out the obvious (to him) problem of people blowing their money on big-screen televisions. Then he moved on to describe all the great things that would happen with the money if it were used by the federal government to protect wild lands and clean our air and water.
I was dumbfounded. I understand people wanting control over the gigantic sums of money that will be generated through a carbon regulation, but again, I had to sit in stunned silence while an "expert" was allowed to railroad basic economics. The words "paternalistic", "regressive taxation", and "really?!?", repeatedly flashed through my mind.
So to quickly debunk the gentleman's concern, let me ask you, dear reader, this (rhetorical) question: Where will all this money come from?
This money will come from our economy, and in our economy, most markets are oligopolies (markets with very few producers). Now, it is not true that all new costs to businesses are automatically shuffled off to consumers; where the final cost winds up depends on a number of factors. But, it is true that one of the biggest factors in determining where that cost will settle is the number of competitors in a market. The fewer the competitors, the more the costs can be given to consumers. In monopolies and oligopolies, then, the vast majority of that additional cost is paid by consumers.
So when a carbon price hits, the prices of televisions and electricity will depend on the ability of the producers to limit their carbon emissions. "Dirtier" TV's and electricity will be more expensive, cleaner ones will be cheaper. The consumer will get a check from the carbon price, but this consumer will be playing in vastly different marketplaces, and will have many new incentives in her purchase decisions.
Now, a nationally recognized group of economists who are far more intelligent than I am (or that feller I saw last year) have suggested the same thing. They don't recommend a rebate of everything, (nor do I), but they do recommend a big rebate (me, too).
With the remaining amount, I recommend funding the parts that can't play in our market system: Wild lands, wildlife, etc. But, that's for another post. Also, I must iterate that a carbon price must be expensive (or a cap tight - same difference), or else it will not be effective. The only way to alleviate the disproportionate burden on poor folks, then, is to issue a rebate of equal amount to everybody.
Go cap & squander, everybody!
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